Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
11 Nov 2011
Case Brief
The Reserve Bank of India cancelled the licence of Solapur Nagari Audyogik Sahakari Bank Niyamit, Solapur (Maharashtra) with effect from the close of business on November 5, 2011. RBI said the bank had ceased to be solvent, repeated revival efforts in consultation with the Government of Maharashtra had failed, and depositors were facing continued uncertainty. The release further states that statutory inspections revealed persistent deterioration in the bank’s financial position, negative net worth, very weak capital adequacy, significant erosion in deposits, high NPAs, and non-compliance with several provisions of the Banking Regulation Act, 1949 (as applicable to co-operative societies), including sections 11(1), 18, 22(3)(a), 22(3)(b) and 24. RBI also noted that the bank violated operational instructions and investment guidelines, for which a penalty of Rs 5 lakh had earlier been levied. Following an unsatisfactory reply to the show-cause notice and the absence of a viable merger/restructuring plan, RBI took the extreme step of cancelling the licence and requested the Registrar of Co-operative Societies, Maharashtra to initiate winding up and appoint a liquidator.
Why RBI Acted
RBI cancelled the licence of Solapur Nagari Audyogik Sahakari Bank Niyamit, Solapur (Maharashtra) because the bank had ceased to be solvent, repeated inspections showed worsening financial condition, and the affairs of the bank were being conducted in a manner detrimental to depositors' interests. The release cites violations of sections 11(1), 18, 22(3)(a), 22(3)(b) and 24 of the Banking Regulation Act, 1949 (as applicable to co-operative societies), notes non-compliance with RBI operational instructions and investment maintenance guidelines, and states that no concrete merger or viable revival/restructuring proposal was received. It also mentions a prior monetary penalty of Rs 5 lakh for violating operational instructions and RBI circular requirements on government securities investments.
Operating Impact
The bank can no longer carry on banking business and is to be wound up, with a liquidator to be appointed. Depositors become entitled to DICGC insurance repayment up to Rs 1 lakh per depositor, subject to the scheme’s terms and conditions, and the liquidation process for insured payouts is to begin.
Regulatory Basis
- Section 35 A of the Banking Regulation Act, 1949
- Section 35 of the Banking Regulation Act, 1949 (As Applicable to Co-operative Societies)
- Section 5(b) of the Act
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 5 Nov 2011
- Effective From
- 5 Nov 2011
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank