Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
25 Feb 2009
Case Brief
The Reserve Bank of India cancelled the licence of Suvarna Nagari Sahakari Bank Ltd., Parbhani (Maharashtra), after concluding that the bank had become insolvent, its net worth was negative, and revival was not feasible. The statutory inspection had found non-compliance with provisions of the Banking Regulation Act, 1949 (as applicable to co-operative societies) and violations of RBI guidelines/instructions. RBI noted that the bank had earlier been placed under Section 35A directions precluding it from incurring any liability, but it failed to recover. RBI also rejected the bank’s reply to a show-cause notice and requested the Registrar of Co-operative Societies, Maharashtra to initiate winding-up and appoint a liquidator. Following cancellation, the bank is prohibited from carrying on banking business, including acceptance and repayment of deposits, and depositors will be entitled to DICGC insurance up to the statutory ceiling.
Why RBI Acted
RBI cancelled the banking licence of Suvarna Nagari Sahakari Bank Ltd., Parbhani, after concluding that the bank had ceased to be solvent, its realizable paid-up capital and reserves were negative, and chances of revival were remote without a viable action plan. The statutory inspection revealed non-compliance with several provisions of the Banking Regulation Act, 1949 (as applicable to co-operative societies) and violations of RBI guidelines/instructions. The bank had earlier been placed under Section 35A directions precluding it from incurring any liability, but it still failed to turn around. RBI therefore issued a show-cause notice and, finding the reply unacceptable, took the extreme step of cancelling the licence and initiating liquidation.
Operating Impact
The bank must cease banking operations and enter liquidation. Depositors will be paid only up to the DICGC insured limit (Rs 1,00,000 per depositor), while the rest of their claims will depend on liquidation proceedings.
Regulatory Basis
- Section 35A of the Banking Regulation Act, 1949
- Section 22 of the Banking Regulation Act, 1949
- Section 5(b) of the Banking Regulation Act, 1949
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 20 Feb 2009
- Effective From
- 20 Feb 2009
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank