Since January, the RBI has cancelled the licences of seven cooperative banks

Description

The Reserve Bank of India (RBI) has once again cancelled a co-operative bank's licence due to its poor financial condition. Sumerpur Mercantile Urban Cooperative Bank Limited, Jai Prakash Narayan Nagari Sahakari Bank Ltd, Shree Mahalaxmi Mercantile Co-operative Bank Ltd, and Hiriyur Urban Co-operative Bank Ltd have all had their licences withdrawn since January.

Other Examples Of The RBI Canceling Co-Op Bank Licences

The RBI withdrew the licences of Mumbai's City Co-operative Bank and Purvanchal Co-operative Bank in Ghazipur, Uttar Pradesh, in June, citing similar issues of insufficient capital and earning potential. "Banaras Mercantile Co-operative Bank ceases to carry on banking business, with effect from the close of business on July 4, 2024," said the RBI in an announcement. Furthermore, the Commissioner for Cooperation and Registrar of Cooperative Societies in Uttar Pradesh has been directed to commence the winding-up process and appoint a liquidator.

Licence Cancellation Reasons

The cooperative banks lacked capital and made insufficient profits. They couldn't guarantee repaying all investors, and permitting them to continue would undermine the public interest. As a result, the RBI decided to cancel its licensing in order to preserve the public's money.

Banking Regulations Act, 1949

According to the banking regulator, banks lacked sufficient capital and earnings potential. They failed to follow the provisions of the Banking Regulation Act, 1949. The banks' continued operations were damaging to the interests of its depositors. With their current financial situation, the banks would have been unable to repay their depositors in full. Allowing the banks to continue operations will harm the public interest.

About Cooperative Banking

Co-operative banking refers to small financial organizations formed by a group to address the capital needs of a certain community. These banks, which are owned and governed by their members, operate under the cooperative principle. Members pool their resources to offer banking services such as loans and savings accounts.

A Cooperative Bank Working

Membership: Individuals or corporations that meet certain conditions can join by acquiring shares or making an initial contribution. Democratic governance: Every member has equal voting rights, regardless of how many shares they own. Members choose a board of directors from among themselves to oversee operations and make important decisions. Capital formation: Members contribute to the bank's capital by purchasing shares or making deposits, which are the principal source of funding for the bank's lending activities and other financial services.

Who Oversees These Banks?

In India, co-operative banks are registered under the States Co-operative Societies Act and regulated by the RBI under the Banking Regulations Act of 1949 and the Banking Laws (Co-operative Societies) Act of 1955. They have been under RBI supervision since 1966.

What Are Banaras Mercantile Cooperative Bank Depositors Entitled To?

According to the bank's records, 99.98% of depositors are eligible to receive the full value of their savings from the Deposit Insurance and Credit Guarantee Corporation (DICGC). Upon liquidation, each depositor is entitled to collect up to Rs 5 lakh from the DICGC. As of April 30, DICGC had already paid Rs 4.25 crore of the entire insured deposits, based on the willingness of the depositors.

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