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The Metro Cooperative Bank Ltd., Surat, Gujarat

Co-operative bankSurat, Gujarat

The RBI action, regulatory basis, and operating impact linked to this entity.

Recorded RBI impact

License cancellation

License cancellation · Fresh imposition

S5

Published by RBI

17 Sept 2005

Case Brief

The Reserve Bank of India cancelled the licence granted to The Metro Cooperative Bank Ltd., Surat, Gujarat, by order dated September 8, 2005, and the order was delivered on September 16, 2005. RBI said the bank had ceased to be solvent. The release also recounts the bank's deteriorating condition: it failed to meet clearing liabilities, had poor liquidity, high NPAs, negative net worth and CRAR, erosion of deposits, violations of RBI guidelines and directives, unsatisfactory Board functioning, and irregularities including allegations of fictitious accounts and fraudulent transactions. RBI had earlier imposed Section 35A directions prohibiting fresh deposits and restricting deposit repayments, and later requisitioned supersession of the Board, after which an Administrator was appointed. Following the cancellation, the bank was prohibited from carrying on banking business, including accepting and repaying deposits, and liquidation/recovery proceedings with DICGC coverage for depositors were to follow.

Why RBI Acted

Capital & exposure normsGovernance oversightReporting & disclosureCustomer protectionLicensing breachOther

By order dated September 8, 2005, RBI cancelled the licence of The Metro Cooperative Bank Ltd., Surat, Gujarat after concluding that the bank had ceased to be solvent. The release states that the bank had failed to meet clearing liabilities, had poor liquidity, high NPAs, negative net worth and CRAR, a significant erosion of deposits, violations of RBI guidelines/directives, unsatisfactory Board functioning, and allegations/revelations of fictitious accounts and fraudulent transactions. RBI had earlier issued Section 35A directions restricting fresh deposits and deposit repayments, and later requisitioned supersession of the Board; the licence cancellation was taken as the extreme measure in the interest of depositors under the Banking Regulation Act.

Operating Impact

The bank can no longer carry on banking business and must proceed toward liquidation, with a liquidator to be appointed. Depositors will rely on DICGC insurance coverage up to the statutory ceiling of Rs. 1,00,000, while the earlier restrictions on deposits and repayments are superseded by the licence cancellation.

Regulatory Basis

  • Section 35A of the Act ibid
  • Section 5(b) of the Act ibid

Action Facts

Primary Impact
License cancellation
Order Date
8 Sept 2005
Effective From
21 Oct 2004
Entities Affected
1
Entity Role
Primary
Entity Type
Co-operative bank