Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
16 Feb 2006
Case Brief
The Reserve Bank of India cancelled the banking licence of The Dhansura People's Co-operative Bank Ltd., Dhansura, Gujarat, after concluding that the bank had ceased to be solvent and that attempts to revive it had failed. The bank had earlier been put under Section 35A directions because of a liquidity crisis: it was first prohibited from granting or renewing loans and advances, and later the directions were modified to stop acceptance of fresh deposits and cap repayment of deposits at Rs 1,000 per depositor. RBI noted deterioration in the bank's financial position, including erosion of deposits and negative realisable value of paid-up capital and reserves. As no viable revival plan existed and the prospects of revival were remote, RBI cancelled the licence in the interest of depositors and requested the Registrar of Co-operative Societies, Gujarat, to commence winding up and appoint a liquidator.
Why RBI Acted
RBI cancelled the licence of The Dhansura People's Co-operative Bank Ltd., Dhansura, Gujarat after concluding that the bank had ceased to be solvent, revival efforts in consultation with the Government of Gujarat had failed, and depositor interests were being harmed by ongoing uncertainty. The release says the bank faced a liquidity crisis, had been placed under Section 35A directions from 19 June 2004 prohibiting grant or renewal of loans and advances, and those directions were later modified on 20 June 2005 to prohibit acceptance of fresh deposits and restrict repayment of deposits to Rs 1,000 per depositor. Inspection showed deterioration in financial condition, with deposits eroding and realisable value of paid-up capital and reserves in the negative. After a show-cause notice and no viable revival plan, RBI took the final step of cancelling the banking licence and initiating liquidation.
Operating Impact
The bank can no longer carry on banking business, including accepting or repaying deposits. Liquidation proceedings are to begin, and insured depositors will be eligible to receive up to Rs 1,00,000 from DICGC subject to the liquidation process.
Regulatory Basis
- Section 35A 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
- 15 Feb 2006
- Effective From
- 19 Jun 2004
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank