Reserve Bank of India cancels the Licence of The Urban Co-operative Bank Ltd. (Bhubaneswar)

The Urban Co-operative Bank Ltd., Bhubaneswar was granted a licence by the Reserve Bank of India on September 7, 1987 to conduct banking business under Section 22 of the Banking Regulation Act, 1949 (As Applicable to Co-operative Societies).

On liquidation, every depositor is entitled to repayment of his/her deposits up to a monetary ceiling of Rs1,00,000/- (Rupees one lakh only) from the Deposit Insurance and Credit Guarantee Corporation under usual terms and conditions.

The first hint of trouble was noticed in the cooperative bank in the Statutory Inspection of Annual Accounts 2002-2003.
Gross and Net Non-Performing Assets (NPAs) of the bank at 39.4% and 31.9% respectively. The bank had sanctioned loans to its Directors and their relatives in 14 accounts and with the exception of one account, all accounts became NPA.

The bank’s revival plan submitted on January 15, 2009 was also not found satisfactory. The bank was given time to explore the possibility of a merger with any other strong UCB in or outside the State of Odisha. However, the bank failed to come forward with any viable merger proposal.

The statutory inspection as on March 31, 2009, 2010 and 2011 also indicated no improvement and the bank continued to function in violation of the provisions of Section 11(1) and 22 (3) (a) of the Act ibid.

A fresh SCN for cancellation of licence was issued to the bank on September 6, 2011 after reviewing its financial position as on March 31, 2011. The bank had not submitted its reply to the SCN and sought extension of time to materialize its merger proposal.

In the meantime, the statutory inspection was conducted with reference to the bank’s financial position as on March 31, 2012. The proposed merger did not materialize, with the acquirer bank withdrawing in January 2013.

The bank in its reply to the latest SCN issued on May 31, 2013 submitted that it would comply with the various sections of B. R. Act, viz Section 11, 22(3) on successful implementation of One Time Settlement (OTS) scheme and infusion of share capital of Rs10.00 crore from the State Government though there was no commitment from the State Government to this effect.

The bank emphasized that by implementing OTS / SARFAESI Act, it intended to collect Rs 1130.52 lakh by March 31, 2014. Considering the poor track record of the bank on recovery front, the projected target of recovery was found not realistic.

The bank in its reply also stated that a society has expressed their willingness to take over the management of the bank. The proposal was examined by Reserve Bank of India, but not found acceptable due to violation of BR Act provision.

Over the years from the facts and circumstances surrounding the Bank, it was observed that:
• The bank does not comply with the provisions of Sections 11(1) and 18 of B.R. Act
• The bank is not in a position to pay its present and future depositors and the affairs of the bank are being conducted in a manner detrimental to the interest of the present and future depositors and thus the bank did not comply with Section 22(3) (a) and 22 (3) (b) of the B.R. Act.
• The financial position of the bank leaves no scope for its revival.
• Public interest would be adversely affected if the bank is allowed to carry on its business any further.
• The bank has not taken any positive steps on capital augmentation and financial restructuring and there is no concrete / viable revival plan. Merger proposal with any other sound bank is also not forth-coming.
• In view of the above, the licence granted to the bank to conduct banking business deserved to be cancelled. Accordingly, the licence dated September 7, 1987 granted to The Urban Co-operative Bank Ltd., Bhubaneswar, Odisha to conduct banking business in India under Section 22 of the Act has been cancelled.
• With the cancellation of licence and commencement of liquidation proceedings, the process of paying the depositors of The Urban Co-operative Bank Ltd., Bhubaneswar, Odisha will be set in motion subject to the terms and conditions of the Deposit Insurance Scheme.

Consequent upon the cancellation of its licence, The Urban Co-operative Bank Ltd., Bhubaneswar, Odisha is prohibited from carrying on ‘banking business’ as defined in Section 5(b) of Banking Regulation Act, 1949 (AACS) including acceptance and repayment of deposits.

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