Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
15 Feb 2007
Case Brief
The Reserve Bank of India cancelled the licence of The Adarsh Mahila Co-operative Bank Ltd., Mehsana, Gujarat on February 15, 2007. RBI said the bank had ceased to be solvent, had suffered a severe liquidity crunch, and revival efforts undertaken in consultation with the Government of Gujarat had failed. Inspection of the bank as on March 31, 2006 showed deterioration in financial condition, erosion of deposits, and negative realisable value of paid-up capital and reserves. Earlier, the bank had been placed under Directions under Section 35A of the Banking Regulation Act, 1949 (AACS) with effect from August 09, 2005, and RBI had issued a show-cause notice on August 22, 2005. RBI cancelled the licence as a final step to protect depositors and requested the Registrar of Co-operative Societies, Gujarat to initiate winding up and appoint a liquidator. The release also notes that the bank was prohibited from carrying on banking business, including acceptance and repayment of deposits, and that DICGC-insured amounts would be paid during liquidation proceedings.
Why RBI Acted
RBI cancelled the licence of The Adarsh Mahila Co-operative Bank Ltd., Mehsana, Gujarat after concluding that the bank had ceased to be solvent, faced a severe liquidity crunch, and had no viable plan for revival. The release says revival efforts in consultation with the Government of Gujarat had failed, inspection showed further deterioration in financial condition, deposits were being eroded, and the realisable value of paid-up capital and reserves was negative. RBI also notes it had earlier placed the bank under Directions under Section 35A of the Banking Regulation Act, 1949 (AACS) with effect from August 09, 2005, issued a show-cause notice on August 22, 2005, and then took the final step of cancelling the licence in the interest of depositors; it also requested winding up and appointment of a liquidator.
Operating Impact
The bank cannot carry on banking business, including accepting or repaying deposits, and liquidation proceedings are to begin. Depositors will receive insurance cover up to the statutory ceiling of Rs. 1,00,000 through DICGC, while the Registrar is expected to wind up the bank and appoint a liquidator.
Regulatory Basis
- Section 35A of the Banking Regulation Act, 1949(AACS)
- Section 5(b) of the Banking Regulation Act, 1949 (AACS)
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 15 Feb 2007
- Effective From
- 9 Aug 2005
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank