Recorded RBI impact
License cancellation
License cancellation · Fresh imposition
Published by RBI
10 May 2010
Case Brief
The Reserve Bank of India cancelled the banking licence of Vidarbha Urban Co-Operative Bank Ltd., Akola, Maharashtra on April 22, 2010 at 10:15 a.m. RBI said the bank had become insolvent, repeated revival efforts had failed, and the bank’s financial position had deteriorated further over successive inspections. Earlier, RBI had placed the bank under Section 35A directions restricting its activities, superseded its board, and issued a show-cause notice seeking to know why the licence should not be cancelled and the bank wound up. After the bank’s reply was found unsatisfactory and no viable revival plan was submitted, RBI took the extreme step of cancelling the licence and asked the Registrar of Co-operative Societies, Maharashtra to start winding-up proceedings and appoint a liquidator. The bank is consequently prohibited from carrying on banking business, including accepting and repaying deposits, and depositors will be entitled to DICGC insurance coverage up to the prescribed ceiling.
Why RBI Acted
RBI cancelled the licence of Vidarbha Urban Co-Operative Bank Ltd., Akola, Maharashtra after inspections showed a progressively worsening financial position. The bank had ceased to be solvent, efforts to revive it in consultation with the Government of Maharashtra had failed, its paid-up capital and reserves had negative realizable value, and it had not submitted any viable action plan for revival. RBI had already issued directions under Section 35A of the Banking Regulation Act, 1949 (AACS), superseded the board, and issued a show-cause notice under Section 22 before taking the extreme measure of licence cancellation. RBI also requested the Registrar of Co-operative Societies, Maharashtra to initiate winding up and appoint a liquidator.
Operating Impact
The bank must stop all banking business immediately, including accepting and repaying deposits, and liquidation proceedings will follow. Depositors will have their claims processed subject to DICGC rules, with insurance coverage up to Rs. 1,00,000 per depositor; the Registrar of Co-operative Societies is to appoint a liquidator. The action affects the bank, its depositors, and the liquidation process.
Regulatory Basis
- Section 35-A of the Banking Regulation Act, 1949 (AACS)
- section 22 of the Act
- Section 5(b) of the Banking Regulation Act, 1949 (As Applicable to Cooperative Societies)
Action Facts
- Primary Impact
- License cancellation
- Order Date
- 22 Apr 2010
- Effective From
- 12 Oct 2010
- Entities Affected
- 1
- Entity Role
- Primary
- Entity Type
- Co-operative bank