The Reserve Bank of India (RBI) has issued a show-cause notice to the Baghat Urban Cooperative Bank in Solan, Himachal Pradesh, proposing to cancel its banking licence and initiate liquidation proceedings. The action follows the detection of grave deficiencies in the bank's operations that violated statutory RBI norms.
The notice, dated June 15, grants the bank a 30-day period to explain its position. Should the bank fail to provide a satisfactory response, the RBI will proceed with liquidation. This development has dealt a severe blow to approximately 80,000 depositors and 11,000 shareholders, who have faced financial restrictions since October 2025.
Regulatory Actions and Suspension of Board
In response to the RBI's notice, the Registrar Cooperative Societies (RCS), Shimla, suspended the bank's Chairman, Vice-Chairman, and six Directors in orders issued on the evening of June 20. An administrator, Neeraj Sood, has been appointed to manage the bank's affairs. Additionally, the RCS issued a separate show-cause notice to all nine members of the Board of Management (BoM) under Section 37 of the HP Cooperative Societies Act, 1968.
The bank, which has been operational since May 9, 1997, has been under constant RBI scrutiny since 2017. Its loaning facility was halted in April 2021 after the central bank imposed a penalty due to financial inadequacies.
Board Members and Ongoing Inquiry
The BoM includes Chairman Arun Sharma, Vice-Chairman Kiran Kishore Thakur, and Directors Sunder Singh Thakur, Sanjeev Kumar, Amar Singh, Krishan Lal Grover, Kalpana Thakur, and Gagan Chauhan (an RCS-appointee Director). A surcharge inquiry initiated by the assistant registrar cooperative societies in March has yet to fix accountability for serious irregularities, illegalities, and lapses in disbursing unsecured loans.
In a strongly worded letter, the RCS highlighted persistent and serious irregularities in the bank's conduct, which violated statutory provisions and RBI guidelines. The RCS stated, "Despite warnings of strict penal action, the board failed to devise a detailed strategy and concrete action plan to improve its precarious financial position and demonstrate substantial improvement."
Financial Indicators and RBI Restrictions
The RCS noted that "Persistent non-compliance of the bank in attaining minimum regulatory thresholds for Capital-to-Risk Weighted Assets Ratio (-10.46), Credit Deposit Ratio (69.76), and net Non-Performing Assets per cent (7.94) by March 31 prompted the RBI to impose comprehensive restrictions on operations of the bank from October 8, 2025." These restrictions prohibited grant or renewal of loans, advances, investments, incurrence of liabilities (including borrowings), acceptance of fresh deposits, and disbursal of payments without prior RBI approval.
The restrictions were initially operative for six months. Upon review, the RBI found no improvement but extended them for a further three months up to July 8, keeping public interest in mind. The RCS observed, "The bank's financial condition, however, saw no substantial improvement which eroded stakeholder confidence as the board has utterly failed to restore regulatory compliance, rendering normal banking operations untenable."
Warning of Licence Cancellation and Stakeholder Impact
Warning the bank of serious consequences, the RCS pointed out that "continued weak performance may render the bank liable to cancellation of its banking licence, which could cause substantial loss to approximately 11,000 shareholders and 80,000 depositors and may lead to winding-up proceedings." The bank's non-performing assets (NPAs) stand at a precarious Rs 102 crore, and its Capital-to-Risk Weighted Assets Ratio (CRAR) is minus 8, exhibiting severe financial strain.
