Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
7 Jun 2012
Case Brief
RBI cancelled the banking licence of The Madhavpura Mercantile Co-operative Bank Ltd., Ahmedabad (Gujarat), effective from the close of business on June 04, 2012. The release says the bank had ceased to be solvent, efforts to revive it had failed, and depositors were being harmed by continued uncertainty. RBI also described the bank’s financial position as highly precarious, citing negative net worth, full deposit erosion, very high NPAs, accumulated losses, and the absence of any viable revival or merger proposal. After a show-cause notice and consideration of alternative revival proposals, RBI concluded that the bank was not complying with statutory requirements and that public interest would be adversely affected if it were allowed to continue banking operations. RBI also requested the Central Registrar of Co-operative Societies to initiate winding up and appoint a liquidator.
Why RBI Acted
RBI issued an order cancelling the banking licence of The Madhavpura Mercantile Co-operative Bank Ltd., Ahmedabad (Gujarat) with effect from the close of business on June 04, 2012. The release states that the bank had ceased to be solvent, all revival efforts in consultation with the Government of India had failed, and continued uncertainty was inconveniencing depositors. RBI also noted that the bank was not complying with Sections 11(1) and 22(3)(a) and (b) of the Banking Regulation Act, had no revival plan or merger proposal pending, could not resume normal functioning in the foreseeable future, could not pay present and future depositors in full, and that its affairs were being conducted in a manner detrimental to depositors’ interests. The bank’s financial position was described as extremely precarious, with negative net worth, full deposit erosion, and no scope for revival. Consequent to cancellation, the bank is prohibited from carrying on the business of banking.
Operating Impact
The bank can no longer carry on the business of banking from June 04, 2012 onward. Depositors were advised to approach RBI’s Ahmedabad office for clarifications, and the Central Registrar was asked to begin winding-up proceedings and appoint a liquidator.
Regulatory Basis
- Section 35A of the Banking Regulation Act, 1949 (AACS)
- Section 22 of the Banking Regulation Act, 1949
- Section 35 of the Banking Regulation Act, 1949
- Section 48 of the Multi State Co-operative Societies Act, 1984
- Section 11(1) of the Banking Regulation Act, 1949
- Section 22(3)(a) & (b) of the Banking Regulation Act, 1949
- Section 33 of the Multi State Co-operative Societies Act, 2002
- Section 5(b) of the Banking Regulation Act, 1949 (AACS)
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 4 Jun 2012
- Effective From
- 4 Jun 2012
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank