Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
11 Dec 2006
Case Brief
The Reserve Bank of India cancelled the banking licence of The Karamsad Urban Co-operative Bank Ltd., Karamsad, Gujarat on 9 December 2006. RBI said the bank had ceased to be solvent, its financial condition had deteriorated further, and all revival efforts had failed. The bank was unable to repay matured fixed deposits because of a liquidity crunch, and RBI had earlier placed withdrawal restrictions under Section 35A. Following a show-cause notice and finding no viable revival plan, RBI cancelled the licence as a final step to protect depositors. RBI also asked the Registrar of Co-operative Societies, Gujarat to wind up the bank and appoint a liquidator.
Why RBI Acted
RBI cancelled the licence of The Karamsad Urban Co-operative Bank Ltd., Karamsad, Gujarat after concluding that the bank had ceased to be solvent, its financial condition had further deteriorated, and there was no viable revival plan. The bank was unable to refund matured fixed deposits due to liquidity crunch, deposits were eroding, and realizable value of paid-up capital and reserves had turned negative. RBI stated that earlier revival efforts in consultation with the Government of Gujarat had failed and, after issuing a show-cause notice, it took the extreme step of cancelling the banking licence in the interest of depositors. RBI also requested the Registrar of Co-operative Societies, Gujarat to initiate winding up and appoint a liquidator.
Operating Impact
The bank cannot carry on banking business, including accepting or repaying deposits, and liquidation proceedings are to begin. Depositors will be paid subject to the DICGC scheme, up to the prescribed insurance ceiling and terms and conditions.
Regulatory Basis
- Section 35A of the Banking Regulation Act, 1949 (As applicable to Co-operative Societies)
- Section 5(b) of the Banking Regulation Act, 1949 (AACS)
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 9 Dec 2006
- Effective From
- 9 Dec 2006
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank