Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
11 Jun 2005
Case Brief
The Reserve Bank of India cancelled the licence of The Century Co-operative Bank Ltd., Surat, Gujarat, on June 7, 2005, because it had ceased to be solvent. RBI cited prior inspection findings that the bank had sanctioned large temporary overdrafts and unsecured advances, including unsecured advances in current accounts, in violation of its directives. The bank also failed to meet its clearing liability, was suspended from the Surat Clearing House, and later was found to have severely impaired financial parameters, negative net worth and CRAR, and a significant erosion of deposits. After an unsatisfactory reply to a show-cause notice dated February 4, 2005, RBI cancelled the licence in the interest of depositors and requested winding up and appointment of a liquidator. Following cancellation, the bank is prohibited from carrying on banking business, including acceptance and repayment of deposits; depositors are to be paid insured amounts under the DICGC mechanism during liquidation.
Why RBI Acted
RBI cancelled the licence granted to The Century Co-operative Bank Ltd., Surat, Gujarat, on June 7, 2005 because the bank had ceased to be solvent. Prior inspections and scrutiny found that it had sanctioned large temporary overdrafts and unsecured advances, allowed large unsecured advances in the nature of overdrafts in current accounts in violation of RBI directives, failed to meet clearing liabilities, and later showed severe deterioration in financial position with high NPAs, negative net worth and CRAR, and erosion of deposits. A show-cause notice issued on February 4, 2005 was found unsatisfactory, and RBI took the extreme step of cancellation in the interest of depositors. Statutory consequences included initiation of winding-up proceedings and prohibition from carrying on banking business under Section 5(b) of the Banking Regulation Act.
Operating Impact
The bank can no longer conduct banking business, including taking or repaying deposits. Winding-up proceedings are to follow, and insured depositors may receive reimbursement up to the DICGC ceiling as liquidation proceeds begin.
Regulatory Basis
- Section 35A of the Banking Regulation Act, 1949 (AACS)
- Section 5(b) of the Act ibid
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 7 Jun 2005
- Effective From
- 10 Sept 2004
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank