Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
16 May 2006
Case Brief
The Reserve Bank of India cancelled the licence of The Onake Obavva Mahila Co-operative Bank Ltd., Chitradurga (Karnataka), after finding the bank had ceased to be solvent and that all revival efforts had failed. The release says the bank had severe liquidity problems, negative realizable capital and reserves, and progressive erosion of deposits. RBI had previously placed the bank under Section 35A directions effective September 11, 2003, restricting withdrawals to Rs. 1,000 per depositor. Following further inspections and a show-cause process, RBI concluded that the bank's revival prospects were remote and ordered licence cancellation after close of business on May 12, 2006. The Registrar of Co-operative Societies, Karnataka was requested to initiate winding-up and appoint a liquidator, and insured depositor repayments under DICGC were to be set in motion.
Why RBI Acted
RBI cancelled the banking licence of The Onake Obavva Mahila Co-operative Bank Ltd. after finding that it had ceased to be solvent, had suffered severe liquidity crunch, and had shown continuing deterioration in financial condition. The release states that realizable capital and reserves were negative, deposits were eroded to 27.82% as of March 31, 2003, then to 39.5% as of June 30, 2004, and further to 62.9% as of March 31, 2005. RBI had earlier placed the bank under Section 35A directions effective close of business on September 11, 2003, restricting deposit withdrawals to Rs. 1,000 per depositor. After issuing a show-cause notice and examining revival options, RBI found the chances of revival remote and cancelled the licence, with liquidation proceedings to follow and DICGC-insured deposit repayment to be triggered.
Operating Impact
The bank cannot carry on banking business, including acceptance and repayment of deposits, and liquidation proceedings are to commence. Depositors will have claims routed through the winding-up process, with insurance coverage available up to the statutory ceiling of Rs. 1,00,000 per depositor under DICGC.
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
- 12 May 2006
- Effective From
- 11 Sept 2003
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank