Reserve Bank Cancels the Licence of Bangalore Mercantile Co-operative Bank Ltd., Bangalore

Case Brief

The Reserve Bank of India cancelled the licence of Bangalore Mercantile Co-operative Bank Ltd., Bangalore, with effect after the close of business on June 23, 2006. RBI said the bank had ceased to be solvent, revival attempts with the Government of Karnataka had failed, and the bank's position had deteriorated further over successive inspections. The release records that the bank's net worth remained negative, deposits had eroded substantially, and the bank failed to act on its stated intent to convert into a co-operative credit society. It also refers to earlier findings that the Board of Directors had flouted normal banking practices and violated RBI guidelines, directives and exposure norms, which had already led to supersession of the board and appointment of an Administrator. After show-cause proceedings and review of the bank's replies, RBI cancelled the licence in the interest of depositors and requested the Registrar of Co-operative Societies, Karnataka, to initiate winding up and appoint a liquidator. The bank is consequently prohibited from carrying on banking business, including acceptance and repayment of deposits; insured depositor payments under the DICGC framework will be triggered through liquidation.