Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
7 Mar 2007
Case Brief
Reserve Bank of India cancelled the licence of The Basavakalyan Pattana Sahakara Bank Niyamith, Basavakalyan, Karnataka, after concluding that the bank had ceased to be solvent and that its revival prospects were remote. An inspection for the year ended March 31, 2006 found that the bank was violating multiple provisions of the Banking Regulation Act, 1949 (as applicable to cooperative societies) and several RBI guidelines/instructions, and that its realizable net worth had turned negative. The bank had earlier been placed under Section 35A directions restricting its activities, including a ceiling on repayment of deposits of Rs 500 per depositor. RBI had also issued a show-cause notice under Section 22 on October 16, 2006; the bank's reply was found unacceptable. Following cancellation, the Registrar of Co-operative Societies, Karnataka was requested to initiate winding up and appoint a liquidator, and the bank was prohibited from carrying on banking business including acceptance and repayment of deposits.
Why RBI Acted
RBI cancelled the licence of The Basavakalyan Pattana Sahakara Bank Niyamith, Basavakalyan (Karnataka) after concluding that the bank had ceased to be solvent, its realizable net worth was negative, and the chances of revival were remote. A statutory inspection as of March 31, 2006 found non-compliance with several provisions of the Banking Regulation Act, 1949 (as applicable to cooperative societies) and violations of several RBI guidelines/instructions. The bank had also been placed under directions under Section 35A on September 28, 2006, restricting its activities with a ceiling on repayment of deposits up to Rs 500 per depositor. After a show-cause notice dated October 16, 2006 was issued under Section 22 of the Act, the bank's reply was examined and found unacceptable. In the interest of depositors, RBI took the extreme measure of cancelling the licence and initiating liquidation proceedings; the Registrar of Co-operative Societies, Karnataka was requested to wind up the bank and appoint a liquidator.
Operating Impact
The bank can no longer conduct banking business, accept deposits, or repay deposits except through the liquidation/DICGC process. Depositors are to be paid insured amounts up to Rs 1,00,000 under the DICGC framework, and the bank will proceed into winding up with a liquidator appointed by the state registrar.
Regulatory Basis
- Section 35A of the Banking Regulation Act, 1949 (As Applicable to Cooperative Societies)
- Section 22 of the Banking Regulation Act, 1949 (As Applicable to Cooperative Societies)
- Section 5(b) of the Banking Regulation Act, 1949 (As Applicable to Cooperative Societies)
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 5 Mar 2007
- Effective From
- 5 Mar 2007
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank