Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
24 Dec 2020
Case Brief
The Reserve Bank of India cancelled the banking licence of Subhadra Local Area Bank Ltd., Kolhapur, Maharashtra, by order dated December 24, 2020 under Section 22(4) of the Banking Regulation Act, 1949. RBI said the bank’s affairs were detrimental to the interests of its present and future depositors, public interest would be adversely affected by allowing it to continue in its existing manner, and the general character of management was prejudicial to depositor interests; it also noted that the bank breached the minimum net worth requirement for two quarters in FY 2019-20. The cancellation is effective from close of business on December 24, 2020, and the bank is prohibited from conducting banking business or any additional business under the Act, after which RBI said it would apply for winding up before the High Court.
Why RBI Acted
RBI cancelled the banking licence of Subhadra Local Area Bank Ltd. under Section 22(4) of the Banking Regulation Act, 1949 because the bank’s affairs were being conducted in a manner detrimental to the interests of its present and future depositors, public interest would be adversely affected if it continued operating in its current manner, and the general character of management was considered prejudicial to depositor interests. RBI also noted breach of the minimum net worth requirement for two quarters in FY 2019-20.
Operating Impact
Subhadra Local Area Bank Ltd. must stop banking operations with immediate effect from the effective time, and it cannot carry on banking or related additional business under the Banking Regulation Act. RBI indicated it will seek winding up before the High Court; depositors are noted to have enough liquidity for payment, but the bank’s operational freedom as a bank is effectively समाप्त.
Regulatory Basis
- Section 22 (4) of the Banking Regulation Act, 1949
- Section 5(b) of the Banking Regulation Act, 1949
- Section 6 of the Banking Regulation Act, 1949
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 24 Dec 2020
- Effective From
- 24 Dec 2020
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Bank