Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
8 Jun 2005
Case Brief
The Reserve Bank of India cancelled the licence granted to The Royale Co-operative Bank Ltd., Surat, Gujarat on June 2, 2005, citing insolvency and continued deterioration in the bank’s financial condition. RBI said earlier inspections had revealed serious deficiencies, including negative net worth, negative CRAR, high NPAs and erosion of deposits. The bank had already been subjected to Section 35A directions restricting fresh liabilities and deposit repayments above Rs.500, and steps had been taken to supersede its board. After the bank failed to improve and did not reply to the show-cause notice on cancellation, RBI took the extreme step of cancelling the licence. The Registrar of Co-operative Societies, Gujarat was requested to wind up the bank and appoint a liquidator, and depositors were told that insurance coverage would apply up to the statutory ceiling under DICGC.
Why RBI Acted
On June 2, 2005, the Reserve Bank cancelled the licence of The Royale Co-operative Bank Ltd., Surat, Gujarat after concluding that the bank had ceased to be solvent. The bank had earlier been found to have serious deficiencies in its working, including negative net worth, negative CRAR, high NPAs and significant erosion of deposits. RBI had already issued directions under Section 35A of the Banking Regulation Act on October 12, 2004, restricting fresh liabilities and limiting repayment of deposits above Rs.500, and had also initiated steps for supersession of the board. A show-cause notice for cancellation was issued on December 8, 2004, but the bank did not reply. RBI therefore took the extreme step of cancelling the licence and requested winding up and appointment of a liquidator.
Operating Impact
The bank must stop all banking business, including acceptance and repayment of deposits, and liquidation proceedings are to begin. Depositors will be able to claim insured amounts through the liquidation process, subject to the DICGC ceiling, while the liquidator is required to submit claims expeditiously to DICGC. The order was delivered to the bank on June 7, 2005.
Regulatory Basis
- Section 35A of the Banking Regulation Act
- Section 5(b) of the Act ibid
- Section 115A of the Gujarat Co-operative Societies Act, 1961
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 2 Jun 2005
- Effective From
- 2 Jun 2005
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank