Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
24 May 2007
Case Brief
The Reserve Bank of India cancelled the banking licence of The Chetak Urban Co-operative Bank Ltd., Parbhani, Maharashtra, after concluding that the bank had ceased to be solvent and that revival was not feasible. RBI said the bank’s realizable net worth had become negative, statutory inspection revealed breaches of the Banking Regulation Act and RBI instructions, and a prior Section 35A order had already restricted the bank from incurring liabilities and from repaying deposits beyond Rs 1,000 per depositor. Following a show-cause notice and further scrutiny, RBI decided to cancel the licence under Section 22 of the Banking Regulation Act, 1949 (as applicable to cooperative societies). The Registrar of Co-operative Societies, Maharashtra was asked to initiate winding up and appoint a liquidator, and depositors would look to insurance coverage under DICGC, subject to the statutory ceiling.
Why RBI Acted
The Reserve Bank of India cancelled the licence of The Chetak Urban Co-operative Bank Ltd., Parbhani, after determining that the bank had ceased to be solvent, its realizable paid-up capital and reserves were negative, and efforts to revive it had failed. RBI’s statutory inspection found non-compliance with several provisions of the Banking Regulation Act, 1949 (as applicable to cooperative societies) and violations of RBI guidelines/instructions. The bank had earlier been placed under Section 35A directions restricting it from incurring any liability and capping repayment of deposits at Rs 1,000 per depositor. After a show-cause process and further scrutiny, RBI concluded that the chances of revival were remote and cancelled the licence under Section 22 of the Banking Regulation Act, 1949 (AACS), with liquidation to follow.
Operating Impact
The bank can no longer carry on banking business, including accepting or repaying deposits, and liquidation proceedings will begin. Depositors are expected to recover insured amounts up to the statutory DICGC ceiling, while other claims depend on the liquidation process.
Regulatory Basis
- Section 35A of the Banking Regulation Act,1949 (As Applicable to Cooperative Societies)
- Section 22 of the Banking Regulation Act, 1949(AACS)
- Section 5(b) of the Banking Regulation Act, 1949(AACS)
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 17 Jul 2007
- Effective From
- 19 May 2007
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank