Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
16 Nov 2011
Case Brief
The Reserve Bank of India cancelled the banking licence of The Charminar Co-operative Urban Bank Ltd., Hyderabad (Andhra Pradesh), effective after the close of business on November 15, 2011. RBI said the bank had ceased to be solvent, efforts to revive it had failed, and continued uncertainty was inconveniencing depositors. The order also noted that the bank’s financial position had not improved over time: its net worth and CRAR were deeply negative, the entire loan portfolio was impaired, and the deposits were considered eroded. RBI found violations of Sections 11(1), 22(3)(a) and 22(3)(b) of the Banking Regulation Act, 1949 (as applicable to co-operative societies), and stated that the bank was unable to pay depositors in full as claims accrued and was conducting its affairs detrimentally to depositors. After an unsatisfactory reply to a show-cause notice, RBI cancelled the licence and asked the Registrar of Co-operative Societies, Andhra Pradesh to initiate winding up and appoint a liquidator.
Why RBI Acted
The Reserve Bank of India cancelled the licence of The Charminar Co-operative Urban Bank Ltd., Hyderabad (Andhra Pradesh) after concluding that the bank had ceased to be solvent, turnaround efforts with the Government of Andhra Pradesh had failed, and continued uncertainty was inconveniencing depositors. RBI noted that inspections revealed no improvement, the bank’s net worth and CRAR were deeply negative, the entire loan portfolio was impaired, and the entire deposits were eroded. RBI also found that the bank was not complying with Sections 11(1), 22(3)(a) and 22(3)(b) of the Banking Regulation Act, was not in a position to pay depositors in full as claims accrued, and was conducting its affairs in a manner detrimental to depositors’ interests. A show-cause notice had been issued, but the bank did not submit a satisfactory revival plan. RBI therefore cancelled the licence and requested the Registrar of Co-operative Societies to initiate winding up and appoint a liquidator.
Operating Impact
The bank is prohibited from carrying on banking business, including accepting or repaying deposits. Liquidation proceedings are to begin, and depositors will be paid subject to the Deposit Insurance Scheme, up to the applicable insurance ceiling, subject to usual terms and conditions.
Regulatory Basis
- Section 36 of the Banking Regulation Act, 1949 (As Applicable to Co-operative Societies) [B. R. Act, 1949 (AACS)]
- Section 35 of the B. R. Act, 1949 (AACS)
- Section 35A of BR Act, 1949 (AACS)
- Section 11(1)
- Section 22(3)(a)
- Section 22(3)(b)
- Section 5(b) of the Banking Regulation Act, 1949 (AACS)
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 8 Nov 2011
- Effective From
- 15 Nov 2011
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank