RBI Annuls City Co-operative Bank’s License, Orders Instant Closing
Directs appointing a liquidator to oversee the dissolution of the institution
The Reserve Bank of India (RBI) has cancelled the license of the City Co-operative Bank Limited, Mumbai, Maharashtra due to its failure to meet essential financial criteria outlined under the Banking Regulation Act, 1949.
The bank was deficient in adequate capital and sustainable earning prospects – the essential components to ensure compliance with regulatory standards aimed at safeguarding depositors’ interests.
As per the RBI’s directive, the Commissioner for Cooperation and Registrar of Cooperative Societies was instructed to initiate the process of winding-up the bank. It includes appointing a liquidator to oversee the dissolution of the institution.
Effective immediately (19 June 2024), the bank is prohibited from conducting operations, including acceptance and repayment of deposits.
The RBI’s ruling was a result of multiple factors critical to the sound functioning of the banking entities. The bank failed to adhere to the regulatory provisions of Sections 11(1), 22(3)(a)-(e), and Section 56 of the Banking Act. Coupled with the adverse financial position, the bank posed public interest risk.
Section 11(1) mandates that every bank, incorporated in India, must maintain a minimum paid-up capital as fixed by the RBI. It is intended to provide a financial cushion, enabling the banks to absorb potential losses and maintain resilience against financial shocks.
Sections 22(3)(a)-(e) outline specific operational requirements that the banks must meet. These include maintaining cash reserves, liquidity ratios and compliance with investment norms. The provisions are designed to ensure that banks manage their resources cautiously.
Section 56 empowers the RBI to take regulatory action against banks that fail to comply with the statutory provisions.
Under the provisions of the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961, the bank depositors are assured of protection up to a monetary ceiling of Rs.5,00,000 per depositor.
As per the latest data submitted by the bank, approximately 87 percent depositors are entitled to receive the full amount of their deposits. As of 14 June 2024, based on the claims received, the DICGC disbursed Rs.230.99 crores to eligible depositors.