Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
6 Feb 2007
Case Brief
The Reserve Bank of India cancelled the licence of The Rajkot Mahila Nagrik Sahakari Bank Ltd., Rajkot, Gujarat, on January 31, 2007. RBI said the bank had ceased to be solvent, its financial condition had deteriorated, and efforts to revive it in consultation with the Government of Gujarat had failed. The bank had previously been placed under Section 35A directions from October 27, 2006 due to severe liquidity crunch. RBI also noted that the bank lacked a viable revival plan and therefore cancelled the licence as a final measure to protect depositors. The Registrar of Co-operative Societies, Gujarat was requested to initiate winding up and appoint a liquidator; post-cancellation, the bank was prohibited from carrying on banking business, including acceptance and repayment of deposits.
Why RBI Acted
RBI cancelled the banking licence of Rajkot Mahila Nagrik Sahakari Bank Ltd., Rajkot, Gujarat, after concluding that the bank had ceased to be solvent, was facing severe liquidity stress, and that all attempts to revive it in consultation with the Government of Gujarat had failed. An inspection revealed deterioration in financial condition, erosion of deposits, and negative realisable value of paid-up capital and reserves. RBI had earlier placed the bank under Directions under section 35A of the Banking Regulation Act, 1949 (AACS) effective October 27, 2006, issued a show-cause notice on November 17, 2006, and ultimately cancelled the licence as a final step in the interest of depositors, with winding-up and liquidation to follow.
Operating Impact
The bank can no longer carry on banking business, including accepting or repaying deposits, and liquidation proceedings are to begin. Depositors will rely on DICGC insurance up to Rs. 1,00,000 per depositor, with the remaining claims subject to the liquidation process. The order primarily affects the bank and its depositors.
Regulatory Basis
- Section 35A of the Banking Regulation Act, 1949 (AACS)
- Section 5(b) of the Banking Regulation Act, 1949 (AACS)
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 31 Jan 2007
- Effective From
- 27 Oct 2006
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank