Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
19 Oct 2006
Case Brief
The Reserve Bank of India cancelled the licence of The Bharat Mercantile Co-operative Urban Bank Limited, Hyderabad (Andhra Pradesh), after concluding that the bank had ceased to be solvent and that revival efforts had failed. RBI noted that statutory inspections had found non-compliance with several provisions of the Banking Regulation Act, 1949 (as applicable to co-operative societies), violations of RBI guidelines/instructions, deterioration in the bank's financial condition, and mismanagement of affairs by the Board of Directors. The bank had earlier been placed under directions under Section 35A, and the Registrar of Co-operative Societies later superseded its Board. RBI also issued a show-cause notice before deciding that the chances of revival were remote. Following cancellation, the bank was requested to be wound up and a liquidator appointed, and it was prohibited from carrying on banking business, including acceptance and repayment of deposits.
Why RBI Acted
RBI cancelled the licence of The Bharat Mercantile Co-operative Urban Bank Limited, Hyderabad (Andhra Pradesh) after finding that it had ceased to be solvent and that all efforts to revive it in consultation with the Government of Andhra Pradesh had failed. The release says the statutory inspections revealed non-compliance with several provisions of the Banking Regulation Act, 1949 (as applicable to co-operative societies), violations of RBI guidelines/instructions, further deterioration in financial condition, mismanagement by the Board of Directors, and that the deposits had been fully eroded. RBI had earlier placed the bank under directions under Section 35A and later the Registrar of Co-operative Societies superseded its Board of Directors; after a show-cause notice and finding revival chances remote, RBI cancelled the licence in the interest of depositors and requested winding up and appointment of a liquidator.
Operating Impact
The bank can no longer operate as a banking institution or accept/repay deposits. Liquidation proceedings are to be initiated, and depositors may seek insurance-covered repayment up to the DICGC ceiling of Rs.1,00,000 per depositor, subject to the liquidation process.
Regulatory Basis
- Section 35A 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
- 17 Oct 2006
- Effective From
- 17 Oct 2006
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank