Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
17 Aug 2006
Case Brief
The Reserve Bank of India cancelled the licence of The Kanyaka Parameshwari Mutually Aided Co-operative Urban Bank Ltd., Kukatpally, R.R. District, Andhra Pradesh after concluding that the bank had ceased to be solvent and that revival was not feasible. The bank had earlier been placed under Section 35A directions in January 2005, and the Board of Directors had been superseded by the Registrar of Co-operative Societies in March 2005. RBI said the statutory inspection revealed violations of several RBI guidelines/instructions, liquidity stress following a run on deposits, and later deterioration in financial condition, including negative realizable value of paid-up capital and reserves. After the bank’s reply to the show-cause notice was found unacceptable, RBI cancelled the licence after close of business on August 16, 2006 and requested the Registrar to wind up the bank and appoint a liquidator. The release also notes that depositors will be entitled to insurance cover up to Rs. 1,00,000 under DICGC.
Why RBI Acted
RBI cancelled the banking licence of The Kanyaka Parameshwari Mutually Aided Co-operative Urban Bank Ltd., Kukatpally, Andhra Pradesh after concluding that the bank had ceased to be solvent, all efforts to revive it had failed, and the chances of revival were remote. The release says statutory inspection revealed violations of several RBI guidelines/instructions, the bank faced liquidity problems after a run on deposits, and later inspection showed further deterioration, with deposits getting eroded and realisable value of paid-up capital and reserves negative. A show-cause notice issued on April 26, 2006 was found unsatisfactory, and RBI decided to take the extreme measure of cancelling the licence in the interest of depositors. The Registrar of Co-operative Societies was also requested to initiate winding up and appoint a liquidator.
Operating Impact
The bank is prohibited from carrying on banking business, including accepting and repaying deposits. Liquidation proceedings will begin, and insured depositors may claim up to Rs. 1,00,000 from DICGC; other stakeholders are affected by the winding-up process.
Regulatory Basis
- Section 35A of the B. R. Act, 1949 (AACS)
- Section 5(b) of the B. R. Act, 1949 (AACS)
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 16 Aug 2006
- Effective From
- 16 Aug 2006
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank