Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
19 Jun 2013
Case Brief
The Reserve Bank of India cancelled the banking licence of Vaishali Urban Co-operative Bank Ltd., Jaipur, Rajasthan, on June 12, 2013, after determining that the bank had ceased to be solvent and that all revival efforts had failed. The RBI noted serious irregularities in loans and advances/overdrafts to directors and their relatives, apparent management involvement, failure to report fraud involving fictitious accounts and understatement of liabilities, persistent violations of the Banking Regulation Act provisions, and severe deterioration in financial health including negative CRAR, negative net worth, accumulated losses, and substantial deposit erosion. The RBI also requested the Registrar of Co-operative Societies, Rajasthan to initiate winding up and appoint a liquidator. Upon cancellation, the bank was prohibited from carrying on banking business, including acceptance and repayment of deposits, and deposit repayment would proceed subject to the Deposit Insurance and Credit Guarantee Corporation scheme.
Why RBI Acted
The RBI cancelled the licence granted on March 2, 1998 under Section 22 of the Banking Regulation Act, 1949 (as applicable to co-operative societies) because the bank had ceased to be solvent and could not be revived. The release cites large-scale irregularities in loans and advances/overdrafts to directors and relatives, apparent management involvement, failure to report fraud involving fictitious accounts and understatement of liabilities, persistent non-compliance with Sections 11(1), 18, 22(3)(a) and 22(3)(b), negative CRAR of 753.77%, assessed net worth of (-) Rs 689.84 lakh, accumulated loss of Rs 880.35 lakh, and deposit erosion of 42.14%. The RBI concluded that the bank was not in a position to pay present and future depositors and that allowing it to continue would be detrimental to depositor interests and public interest.
Operating Impact
The bank cannot continue banking operations and will move into liquidation proceedings. Depositors’ repayments will be handled under the deposit insurance framework, subject to applicable terms and the statutory ceiling, while the Registrar is expected to wind up the bank and appoint a liquidator.
Regulatory Basis
- Section 35 A of B. R. Act, 1949 (AACS)
- Section 11(1)
- Section 18
- Section 24
- Section 22(3) (a)
- Section 22(3) (b)
- Section 22 of the Banking Regulation Act, 1949 (As Applicable to Co-operative Societies)
- Section 5(b) of Banking Regulation Act, 1949 (AACS)
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 12 Jun 2013
- Effective From
- 12 Jun 2013
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank