The Reserve Bank of India (RBI) has revoked Karnala Nagari Sahakari Bank's licence in Panvel, Maharashtra since the bank lacked enough capital and was unable to pay its current depositors in full.
With the conclusion of business on Friday, the bank stopped conducting banking activity. "According to the bank's data, 95% of depositors will receive full amounts of their savings from the Deposit Insurance and Credit Guarantee Corporation (DICGC)," the central bank announced after the bank's licence was revoked.
DICGC would pay every depositor the deposit insurance claim amount of his or her savings up to a monetary maximum of Rs. 5 lakh upon liquidation. Karnala Nagari Sahakari Bank's licence was revoked by an order dated August 9, 2021, according to the RBI. The bank's licence has been revoked because it has enough capital and earnings prospects, according to the RBI, which also stated that the lender has failed to meet the criteria of several provisions of the Banking Regulation Act, 1949.
It further said that "the bank, in its current financial situation, would be unable to pay its current depositors in full." While announcing the cancellation of the licence, the RBI stated that allowing the bank to continue operating would be detrimental to the public interest. Karnala Nagari Sahakari Bank is now unable to undertake banking activities, such as accepting and repaying deposits. The Maharashtra Commissioner for Cooperation and Registrar of Cooperative Societies has also been asked to issue an order for the bank's winding up and the appointment of a liquidator. In separate releases, the RBI said it had levied penalties on three cooperative banks for regulatory compliance violations.
Madhya Pradesh Rajya Sahakari Bank Maryadit, Bhopal, and The Greater Bombay Cooperative Bank Ltd., Mumbai, have each been fined Rs. 25 lakh. Jalna People's Cooperative Bank Ltd, Jalna, Maharashtra, has also been fined Rs. 50,000 by the RBI. The fines are based on regulatory compliance issues in all three cases, according to the RBI, and are not meant to rule on the legitimacy of any transaction or arrangement entered into by the cooperative banks with their respective clients.
So far in 2021, the RBI has issued over 100 directions imposing different regulatory actions on erring or poorly managed urban cooperative banks. The central bank's recent cancellation of Karnala Nagari Sahakari Bank's licence is the latest example of the central bank cracking down on weak cooperative banks. The RBI has already terminated the licences of three banks in 2021, according to the report: Shivajirao Bhosale Sahakari Bank on 31 May 2021, Bhagyodaya Friends Urban Co-operative Bank Limited on 22 April 2021 and Vasantdada Nagari Sahakari Bank on 11 January 2021. It revoked three licences last year: Karad Janata Sahakari Bank, CKP Co-operative Bank, and Goa's Mapusa Urban Co-operative Bank.
In all three cases, RBI said the penalties are based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the cooperative banks with their respective customers. The Reserve Bank of India (RBI) has a framework in place to execute disciplinary actions against these financial institutions.
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