Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
31 Jan 2008
Case Brief
The Reserve Bank of India cancelled the licence of The Maratha Co-operative Bank Ltd., Hubli, Karnataka after determining that the bank had ceased to be solvent and that all efforts to revive it in consultation with the Government of Karnataka had failed. RBI cited repeated inspections showing a worsening financial position, very high gross and net NPAs, liquidity stress, inability to pay matured deposits, and erosion of deposits/capital, including negative realisable value of paid-up capital and reserves. A show-cause notice had been issued earlier, and after considering the bank’s reply and subsequent inspection findings, RBI took the extreme step of cancelling the licence in the interest of depositors. The Registrar of Co-operative Societies, Karnataka was also requested to commence winding up and appoint a liquidator. Consequent to the cancellation, the bank is prohibited from carrying on banking business, including acceptance and repayment of deposits, and DICGC-insured deposit repayment will be triggered through liquidation.
Why RBI Acted
The Reserve Bank cancelled the licence of The Maratha Co-operative Bank Ltd., Hubli, Karnataka after finding that it had ceased to be solvent and that efforts to revive it, in consultation with the Government of Karnataka, had failed. RBI noted that inspections under Section 35 showed deterioration in the bank’s financial position, very high gross and net NPAs, a liquidity crisis, inability to pay matured deposits, further deterioration in later inspections, and negative realisable value of paid-up capital and reserves. A show-cause notice for cancellation had been issued earlier, and after considering the bank’s reply and subsequent inspection findings, RBI concluded cancellation was necessary in the interest of depositors. The release also states that the Registrar of Co-operative Societies was requested to initiate winding up and appoint a liquidator.
Operating Impact
The bank can no longer conduct banking business, accept deposits, or repay deposits as an operating institution. Liquidation proceedings will begin, and depositors will look to DICGC for insured repayment up to the statutory ceiling of Rs. 1,00,000 per depositor; other claimants will depend on the liquidation process.
Regulatory Basis
- Section 35 of the Act
- Section 35A of the Act
- Section 5(b) of the Banking Regulation Act, 1949(AACS)
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 29 Jan 2008
- Effective From
- 29 Jan 2008
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank