Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
6 Dec 2006
Case Brief
The Reserve Bank of India cancelled the licence of Sindh Mercantile Co-op. Bank Ltd., Ahmedabad (Gujarat) after determining that the bank had ceased to be solvent, revival efforts had failed, and no viable plan for revival existed. RBI noted that the bank had earlier been placed under directions in 2002 because of a severe liquidity crunch, and that a statutory inspection and subsequent scrutiny showed no improvement in its financial position. A show-cause notice issued in December 2005 did not yield a satisfactory reply. Following the cancellation, RBI requested the Registrar of Co-operative Societies, Gujarat State to issue winding-up orders and appoint a liquidator. RBI also noted that insured deposits would be repaid up to the DICGC ceiling under applicable rules.
Why RBI Acted
RBI cancelled the licence of Sindh Mercantile Co-op. Bank Ltd., Ahmedabad after finding that the bank had ceased to be solvent, earlier revival attempts in consultation with the Government of Gujarat had failed, and no improvement was seen in its financial condition after statutory inspection and scrutiny. The bank had already been placed under directions on October 12, 2002 to protect depositors when it faced a severe liquidity crunch. RBI had issued a show-cause notice for cancellation on December 28, 2005; the bank's reply was found unsatisfactory. Concluding that the chances of revival were remote and that there was no viable plan of action, RBI took the extreme step of cancelling the licence and requested the Registrar of Co-operative Societies, Gujarat State to initiate winding up and appoint a liquidator.
Operating Impact
The bank can no longer carry on banking business, including accepting or repaying deposits. Deposit insurance processing will begin for eligible depositors, and winding-up/liquidation proceedings are to follow.
Regulatory Basis
- Section 5(b) of the Banking Regulation Act, 1949 (AACS)
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 28 Nov 2006
- Effective From
- 28 Nov 2006
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank