The Reserve Bank of India (RBI) on August 13 said it has cancelled the licence of Karnala Nagari Sahakari Bank of Maharashtra.Consequently, the bank ceases to carry on banking business, with effect from the close of business on August 13, 2021, the RBI said in a release.
"The Commissioner for Cooperation and Registrar of Cooperative Societies, Maharashtra has also been requested to issue an order for winding up the bank and appoint a liquidator for the bank," the RBI said.As per the data submitted by the bank, 95 percent of the depositors will receive full amounts of their deposits from Deposit Insurance and Credit Guarantee Corporation (DICGC), the RBI said.
The RBI said the bank does not have adequate capital and earning prospects and failed to comply with the requirements of various sections of the Banking Regulation Act, 1949.The continuance of the bank is prejudicial to the interests of its depositors and the bank with its present financial position would be unable to pay its present depositors in full, the RBI said, adding public interest would be adversely affected if the bank is allowed to carry on its banking business any further.
“The bank is prohibited from conducting the business of ‘banking’ which includes acceptance of deposits and repayment of deposits as defined in Section 5(b) read with Section 56 of the Banking Regulation Act, 1949 with immediate effect,” the RBI said.On liquidation, every depositor would be entitled to receive deposit insurance claim amount of deposits up to Rs five lakh from the DICGC, the RBI said.
This is the latest instance of the central bank clamping down on weak co-operative banks. In 2021 so far, the RBI has issued over 100 directives imposing various regulatory measures on erring or poorly run urban co-operative banks.Doing so, the central bank has continued the clampdown on the industry, which it kicked off in 2020.
Prior to Karnala Bank, the RBI cancelled the licence of three banks in 2021--Shivajirao Bhosale Sahakari Bank on May 31, Bhagyodaya Friends Urban Co-operative Bank Limited on April 22 and Vasantdada Nagari Sahakari Bank on January 11.Last year, it cancelled three permits--Karad Janata Sahakari Bank, CKP Co-operative Bank and the Mapusa Urban Co-operative Bank of Goa.
The RBI has a system in place to enforce punitive actions. The RBI’s Enforcement Department (EFD, set up in April, 2017 to separate enforcement action from supervisory process, identifies actionable violations from the inspection reports, risk assessment reports and scrutiny reports. Market intelligence reports, references from the top management and complaints are also used for investigation. An Adjudication Committee then adjudicates the violations and determines the quantum of penalty.
Besides punishing weak co-operative banks, the RBI has been tightening the rules for these institutions. On June 25, the central bank issued two back-to-back notifications on appointment of managing directors and chief risk officers of urban co-operative banks. The RBI said the tenure of the managing director shall not be for a period of more than five years at a time, subject to a minimum period of three years at the time of first appointment.
Also, the performance of the MD needs to be reviewed by the Board annually, the RBI said, adding the post of the MD or WTD (whole-time directors) cannot be held by the same incumbent for more than 15 years, the RBI said. Further, the UCBs need to ensure that the ‘fit and proper’ criteria of the MD, who should function under the overall general superintendence, direction and control of the Board of Directors, the RBI said.
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