Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
17 May 2006
Case Brief
The Reserve Bank of India cancelled the licence of The Baroda Mercantile Co-operative Bank Ltd., Vadodara, Gujarat, after concluding that the bank had ceased to be solvent and that efforts to revive it had failed. RBI had earlier placed Section 35A directions with a withdrawal cap, but the situation worsened: the bank’s financial condition deteriorated further, deposits were eroding, and the realizable value of paid-up capital and reserves was negative. As the bank had no viable revival plan, RBI took the extreme step of cancelling the licence and requested the Registrar of Co-operative Societies, Gujarat to initiate winding-up and appoint a liquidator.
Why RBI Acted
RBI cancelled the licence of Baroda Mercantile Co-operative Bank Ltd., Vadodara, Gujarat after inspection and scrutiny showed an unsatisfactory and further deteriorated financial position. The bank had ceased to be solvent, realizable value of paid-up capital and reserves was negative, revival efforts in consultation with the Government of Gujarat had failed, and the bank had no viable plan for revival; RBI took this step in the interest of depositors under the Banking Regulation Act, 1949 (as applicable to co-operative societies).
Operating Impact
The bank is prohibited from carrying on banking business, including accepting and repaying deposits, and liquidation proceedings will begin. Depositors will be paid subject to DICGC terms and the insurance ceiling, with the RBI noting a reimbursement limit of up to Rs. 1,00,000 per depositor under usual conditions.
Regulatory Basis
- Section 35A of the Banking Regulation Act, 1949 (As applicable to Co-operative Societies)
- Section 5(b) of the Banking Regulation Act, 1949 (AACS)
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 16 May 2006
- Effective From
- 10 Oct 2002
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank