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Veershaiva Co-operative Bank Ltd., Mumbai (Maharashtra)

Co-operative bankMumbai, Maharashtra

The RBI action, regulatory basis, and operating impact linked to this entity.

Recorded RBI impact

License cancellation

License cancellation · Fresh imposition

S5

Published by RBI

6 Jan 2012

Case Brief

The Reserve Bank of India cancelled the licence of Veershaiva Co-operative Bank Ltd., Mumbai (Maharashtra), with effect from the close of business on December 30, 2011. RBI said the bank had ceased to be solvent, attempts to revive it in consultation with the Government of Maharashtra had failed, and continued uncertainty was inconveniencing depositors. The release cites persistent deterioration in the bank’s financial condition, including negative net worth, negative CRAR, heavy losses, and very high NPAs, along with poor governance and ineffective board oversight. RBI had earlier issued supervisory instructions, later all-inclusive directions under Section 35A, and a show-cause notice asking why the licence should not be cancelled and the bank taken to liquidation. As the bank’s response and revival prospects were unsatisfactory, RBI took the extreme measure of cancelling the licence and requested the Registrar of Co-operative Societies, Maharashtra, to wind up the bank and appoint a liquidator.

Why RBI Acted

Governance oversightReporting & disclosureCapital & exposure normsOther

Following successive statutory inspections, the bank’s financial condition was found to have deteriorated sharply: negative net worth, very high NPAs, erosion of deposits, and negative CRAR far below the regulatory requirement. RBI noted poor governance, ineffective board oversight, continued violations of regulatory guidelines, failure to present a true and fair view, and no satisfactory revival or merger plan. A show-cause notice was issued, but the bank’s reply was unsatisfactory; RBI therefore cancelled the licence under Section 22 of the Banking Regulation Act and initiated liquidation proceedings.

Operating Impact

The bank must cease banking business and move into liquidation proceedings. Depositors will be able to claim insured amounts up to the DICGC ceiling of Rs 1,00,000, subject to the scheme’s terms and conditions, while other creditors are affected by the winding-up process. The cancellation also triggers the statutory prohibition on the bank carrying on banking business.

Regulatory Basis

  • Section 35A of the Act
  • Section 22 of the Act
  • Section 5(b) of the Act

Action Facts

Primary Impact
License cancellation
Order Date
17 Aug 2011
Effective From
30 Dec 2011
Entities Affected
1
Entity Role
Primary
Entity Type
Co-operative bank