Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
28 Dec 2007
Case Brief
The Reserve Bank of India cancelled the banking licence of The Talod Janata Sahakara Bank Ltd., Talod (Gujarat) after concluding that the bank had ceased to be solvent and that revival was not feasible. RBI said its statutory inspection revealed multiple violations of the Banking Regulation Act, 1949 (as applicable to co-operative societies) and RBI guidelines/instructions, and that the realizable value of capital and reserves had become negative. The bank had earlier been placed under Section 35A directions with a cap on repayment of deposits, but despite a show-cause notice under Section 22, the bank’s response was found unacceptable. RBI requested the Registrar of Co-operative Societies, Gujarat to initiate winding-up and appoint a liquidator. The cancellation means the bank cannot carry on banking business, including accepting or repaying deposits, and depositors’ claims will move into the liquidation and DICGC insurance process.
Why RBI Acted
The Reserve Bank of India cancelled the licence of The Talod Janata Sahakara Bank Ltd., Talod (Gujarat) after determining that the bank had ceased to be solvent, its net worth had turned negative, and attempts to revive it in consultation with the Government of Gujarat had failed. RBI’s statutory inspection as of March 31, 2007 found non-compliance with several provisions of the Banking Regulation Act, 1949 (as applicable to co-operative societies) and violations of RBI guidelines/instructions. The bank had earlier been placed under Section 35A directions in 2003, restricting activities and capping repayment of deposits at Rs. 500 per depositor. RBI also concluded that the reply to its show-cause notice under Section 22 was unsatisfactory and that revival prospects were remote, leading to cancellation of the banking licence and initiation of liquidation proceedings.
Operating Impact
The bank must cease all banking business, including acceptance and repayment of deposits, and liquidation proceedings are to proceed. Depositors will rely on the liquidation process and DICGC insurance coverage, up to the statutory ceiling of Rs. 1,00,000 per depositor, for recovery of eligible amounts.
Regulatory Basis
- Section 35A of the Banking Regulation Act 1949 (As Applicable to Cooperative Societies)
- Section 22 of the Banking Regulation Act, 1949 (As Applicable to Cooperative Societies)
- Section 5(b) of the Banking Regulation Act, 1949 (As Applicable to Cooperative Societies)
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 5 Feb 2003
- Effective From
- 27 Dec 2007
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank