Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
7 Nov 2007
Case Brief
The Reserve Bank of India cancelled the banking licence of The Hirekerur Urban Co-operative Bank Ltd., Hirekerur, Karnataka, after concluding that the bank had ceased to be solvent and that efforts to revive it had failed. RBI had earlier placed the bank under Section 35A directions restricting its operations, including a cap of Rs. 500 on withdrawals, and later inspections showed further deterioration in its financial position as well as violations of RBI directions. After an unsatisfactory reply to a show-cause notice issued on 25 June 2007, RBI decided to cancel the licence in the interest of depositors. The Registrar of Co-operative Societies, Karnataka has been requested to order winding up and appoint a liquidator; depositors may receive insured amounts up to the DICGC ceiling on liquidation.
Why RBI Acted
RBI cancelled the licence of The Hirekerur Urban Co-operative Bank Ltd., Hirekerur, Karnataka because the bank had ceased to be solvent, all attempts to revive it in consultation with the Government of Karnataka had failed, and depositors were being inconvenienced by continued uncertainty. RBI stated that the bank had earlier been placed under Section 35A directions restricting operations, including a ceiling on deposit withdrawals of Rs. 500, and that subsequent inspections showed further deterioration and violations of RBI's directions. A show-cause notice for cancellation was issued on 25 June 2007, but the bank's reply contained no concrete revival plan and was unsatisfactory, leading RBI to take the extreme measure of cancelling the licence in the interest of depositors; liquidation proceedings were also to follow.
Operating Impact
The bank can no longer carry on banking business, including accepting or repaying deposits. Winding-up and liquidation proceedings will begin, and depositors will have recourse to DICGC insurance up to the statutory limit.
Regulatory Basis
- Section 35 A of BR Act, 1949 (AACS)
- Section 35 A 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
- 7 Nov 2007
- Effective From
- 7 Nov 2007
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank