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RBI cancels licence of Karad Janata Bank, more than 99% of depositors to get full payment back under DICGC

More than 99 per cent of the depositors of Karad Janata Sahakari Bank will get full payment of their deposits from DICGC, the RBI said.

December 09, 2020 / 07:39 PM IST

The Reserve Bank of India (RBI) on December 8 said it has cancelled the licence of The Karad Janata Sahakari Bank Ltd, Karad, Maharashtra, to carry on banking business, with effect from the close of business on December 7, 2020.

The bank was under all inclusive directions since November 7, 2017. 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.

On liquidation, every depositor is entitled to repayment of his/her deposits up to a monetary ceiling of Rs 5,00,000 from the Deposit Insurance and Credit Guarantee Corporation (DICGC) as per usual terms and conditions.

More than 99 per cent of the depositors of the bank will get full payment of their deposits from DICGC, the RBI said.

Explaining the regulatory action, the RBI said the cooperative bank does not have adequate capital and earning prospects. “As such, it does not comply with the provisions of section 11(1) and section 22 (3) (d) read with section 56 of the Banking Regulation Act, 1949,” the RBI said.

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Further, 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.

“Consequent to the cancellation of its licence, The Karad Janata Sahakari Bank Ltd, Karad, Maharashtra 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.

With the cancellation of licence and commencement of liquidation proceedings, the process of paying the depositors of The Karad Janata Sahakari Bank Ltd, Karad, Maharashtra, as per the DICGC Act, 1961 will be set in motion, the RBI said.

In May this year, the RBI cancelled the licence of CKP Cooperative Bank, another Maharashtra-based cooperative bank saying the financial position of the bank is highly adverse and unsustainable.

Adverse financial position was one of the multiple other reasons behind the cancellation. The bank, as per RBI's observation, also did not have any concrete revival plan or proposal for merger with another bank.

In September, 2019, the RBI superseded the board of Mumbai-based PMC Cooperative Bank after finding major financial irregularities and rule violations. There is no resolution in sight yet for the bank.

PMC Bank has been in discussions with a clutch of potential acquirers over the last year, including a few Mumbai-based banks. However, talks haven’t progressed so far.

In an advertisement on its website on November 3, the Maharashtra-based multi-state co-operative bank invited interest from potential bidders for the reconstruction of the bank.

During investigations, it was found that the bank had been allegedly running fraudulent transactions for several years to facilitate lending to HDIL through fictitious accounts and violating single-party lending rules.

The RBI imposed restrictions on deposit withdrawals and superseded its board after the fraud was detected.
Dinesh Unnikrishnan
first published: Dec 8, 2020 07:24 pm
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