Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
28 Mar 2012
Case Brief
The Reserve Bank of India cancelled the banking licence of The Bhusawal People’s Co-operative Bank Ltd., Bhusawal, Jalgaon (Maharashtra), effective from the close of business on March 22, 2012. RBI said the bank had ceased to be solvent, revival efforts with the Government of Maharashtra had failed, and continued uncertainty was inconveniencing depositors. The release also records the bank’s severe financial deterioration, including negative net worth and CRAR, very high NPAs, accumulated losses, and violations of provisions of the Banking Regulation Act, 1949 (as applicable to co-operative societies). RBI had previously placed the bank under all-inclusive directions under Section 35A, issued a show-cause notice, and found the reply unsatisfactory. Because no concrete viable revival plan or merger proposal was submitted, RBI took the extreme step of cancelling the licence and requested the Registrar of Co-operative Societies, Maharashtra to initiate winding-up and appoint a liquidator.
Why RBI Acted
RBI cancelled the licence of The Bhusawal People’s Co-operative Bank Ltd., Bhusawal, Jalgaon (Maharashtra) because it had ceased to be solvent, revival efforts with the Government of Maharashtra had failed, and continued uncertainty was inconveniencing depositors. The release cites severe deterioration in the bank’s financial position, very high NPAs, negative net worth and CRAR, accumulated losses, non-compliance with Sections 11(1), 22(3)(a) and 22(3)(b) of the Banking Regulation Act, 1949 (as applicable to co-operative societies), and the absence of any concrete viable revival plan or merger proposal. RBI had earlier placed the bank under all-inclusive directions under Section 35A and issued a show-cause notice before taking the final step of cancelling the banking licence and moving toward liquidation.
Operating Impact
The bank must stop carrying on banking business, and liquidation proceedings are to commence. Depositors’ claims will move into the DICGC payout process, subject to the insurance ceiling of Rs 1,00,000 and applicable scheme conditions. The cancellation also affects the bank’s management and creditors through winding-up proceedings. The licence cancellation is effective from close of business on March 22, 2012.
Regulatory Basis
- Section 35 of the Banking Regulation Act, 1949 (As Applicable to Co-operative Societies)
- Section 35 A of the Act
- Section 11(1) of the Act
- Section 22(3)(a) of the Act
- Section 22(3)(b) of the Act
- Section 22 of the Act
- Section 5(b) of the Act
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 24 Oct 2011
- Effective From
- 22 Mar 2012
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank