Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
28 Jul 2006
Case Brief
The Reserve Bank of India cancelled the banking licence of Sri Sampige Siddeswara Urban Co-operative Bank Ltd., Chitradurga, Karnataka, after finding that the bank had become insolvent and that revival efforts had failed. Earlier inspections showed a worsening financial position, and the bank had been under Section 35A directions since 18 June 2005 limiting its activities and capping repayment of deposits at Rs. 1,000 per depositor. RBI had issued a show-cause notice on 1 February 2006, but the bank did not respond. Based on these facts, RBI concluded that continued operation would be detrimental to depositors and cancelled the licence with effect from the close of business on 26 July 2006. RBI also asked the Registrar of Co-operative Societies, Karnataka to initiate winding up and appoint a liquidator.
Why RBI Acted
RBI cancelled the licence of Sri Sampige Siddeswara Urban Co-operative Bank Ltd., Chitradurga, Karnataka after concluding that the bank had ceased to be solvent and that all efforts to revive it, in consultation with the Government of Karnataka, had failed. Statutory inspections showed progressive deterioration in the bank's financial position, including a steep decline by the inspection with reference to 31 December 2003 and further deterioration by the inspection with reference to 30 September 2004; a later inspection with reference to 31 March 2005 found the position precarious. The bank had been placed under Section 35A directions from 18 June 2005 restricting activities with a ceiling on repayment of deposits up to Rs. 1,000 per depositor. RBI issued a show-cause notice on 1 February 2006 under Section 22 of the Banking Regulation Act, 1949(AACS), but the bank did not respond despite reminders. RBI therefore cancelled the licence and initiated liquidation, also requesting the Registrar of Co-operative Societies, Karnataka to order winding up and appoint a liquidator.
Operating Impact
The bank cannot carry on banking business anymore, including accepting or repaying deposits, and liquidation proceedings will follow. Depositors' claims will move into the DICGC payout process, subject to the insurance ceiling, and the Registrar of Co-operative Societies is expected to arrange winding up and a liquidator.
Regulatory Basis
- Section 35A of the Act
- Section 35 of the Act
- Section 22 of the Act
- Section 5(b) of the Banking Regulation Act, 1949(AACS)
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 26 Jul 2006
- Effective From
- 18 Jun 2005
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank