The Reserve Bank of India (RBI) has cancelled the licence of Mumbai-based Sarvodaya Co-operative Bank with immediate effect, citing financial irregularities and the bank's inability to meet its obligations. The decision was taken under Section 56 of the Banking Regulation Act, 1949, read with Section 22 thereof.
Reasons for Licence Cancellation
The RBI found that the bank's financial condition was highly precarious, with its net worth eroded completely. The bank had insufficient capital and inadequate provisions for bad loans. Moreover, it failed to comply with regulatory norms and directives, including those related to income recognition, asset classification, and provisioning. The bank's management was also found to be involved in fraudulent activities, including siphoning off funds.
Impact on Depositors
With the cancellation of the licence, the bank ceases to carry on banking business. Depositors are entitled to claim deposit insurance claims up to Rs 5 lakh per depositor from the Deposit Insurance and Credit Guarantee Corporation (DICGC). The RBI has advised depositors to contact the DICGC for further assistance. As of the latest available data, the bank had total deposits of around Rs 1,200 crore, of which about 85% are insured.
Background of the Bank
Sarvodaya Co-operative Bank, headquartered in Mumbai, had been under RBI's radar for some time. It had faced several regulatory actions, including restrictions on lending and deposit-taking. The bank's financial health deteriorated rapidly due to poor governance and lack of transparency.
What Happens Next
The bank will now be liquidated, and the DICGC will process claims. The RBI has assured depositors that their interests will be protected to the extent insured. The bank's customers are advised to approach the DICGC or the RBI for any queries. The cancellation of the licence is a reminder for depositors to choose banks wisely and for co-operative banks to adhere strictly to regulatory norms.
