Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
10 Sept 2014
Case Brief
RBI cancelled the banking licence of The Merchants’ Co-operative Bank Ltd., Dhule (Maharashtra) with effect from the close of business on August 30, 2014. The order followed findings that the bank had ceased to be solvent, revival efforts with the Government of Maharashtra had failed, and depositors were being affected by prolonged uncertainty. The release details extensive adverse inspection findings: negative assessed capital, erosion in deposits, CRAR far below the regulatory requirement, accumulated losses, very high gross and net NPAs, defaults in CRR/SLR maintenance, non-publication of statutory auditor’s reports in the prescribed manner, non-maintenance of mandated government securities, large exposure to an ex-director and related parties, and unsatisfactory board oversight. RBI also notes earlier supervisory action, imposition and repeated extension of All-Inclusive Directions under Section 35A, issuance of a show-cause notice, and the absence of any viable revival or merger proposal. Consequent to cancellation, liquidation proceedings were initiated and the bank was prohibited from carrying on banking business; depositors would be eligible for DICGC insurance subject to the scheme’s terms.
Why RBI Acted
The RBI cancelled the licence of The Merchants’ Co-operative Bank Ltd., Dhule (Maharashtra) after concluding that the bank had ceased to be solvent, all efforts to revive it had failed, and continued uncertainty was inconveniencing depositors. The release cites serious adverse findings from statutory inspection, including negative capital, erosion of deposits, very high NPAs, defaults in CRR/SLR maintenance, failure to publish statutory auditor’s reports properly, violations of Section 31, weak credit appraisal and supervision, non-recovery from an ex-director and related parties, and unsatisfactory board performance. RBI had earlier imposed and extended All-Inclusive Directions under Section 35A, issued a show-cause notice under Section 22, and ultimately found no satisfactory revival or merger proposal, leading to cancellation and liquidation proceedings.
Operating Impact
The bank must cease banking business and enter liquidation; a liquidator is to be appointed by the Registrar of Co-operative Societies, Maharashtra. Depositors will be paid insured amounts up to the DICGC ceiling subject to the scheme, and the cancellation creates a full operational stop for the bank going forward.
Regulatory Basis
- Section 35 of the Banking Regulation Act, 1949 (AACS)
- Section 31 of the BR Act
- Section 35A of the Act, ibid
- Section 22 of the Act, ibid
- Sections 11(1), 18, 22(3) (a), 22(3) (b) and 31 of the Act, ibid
- section 5(b) of the Act
Action Facts
- Primary Impact
- License cancellation
- Effective From
- 30 Aug 2014
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank