Introduction
In a decisive regulatory move, the Reserve Bank of India (RBI) has cancelled the license of Colour Merchants Co-operative Bank Ltd., Ahmedabad, Gujarat with effect from the close of business on April 16, 2025. The order, issued under the provisions of the Banking Regulation Act, 1949 (as applicable to co-operative societies), underscores the central bank’s commitment to protecting depositors’ interests and ensuring the financial stability of the cooperative banking sector.
Grounds for Cancellation
The RBI exercised its powers under Sections 11(1), 22(3)(a) to 22(3)(e), and Section 56 of the Banking Regulation Act, 1949, to cancel the bank’s license. The reasons for such action are multifold:
- Inadequate Capital and Earning Prospects
The bank failed to maintain the minimum capital requirements and had no reasonable earning potential to revive its operations. - Non-Compliance with Licensing Provisions
The bank was in violation of several provisions of Section 22(3) of the Act, including:- Failure to comply with prudent banking norms.
- Inability to maintain depositor confidence.
- Operational weaknesses and sustained financial erosion.
- Adverse Impact on Depositor Interests
The RBI deemed the bank’s continuation as detrimental to the interest of depositors due to its deteriorating financial position and inability to repay depositors fully. - Insolvency Risk
The current state of the bank suggested that it would be unable to meet its liabilities and repay its present depositors in full. - Public Interest Consideration
Allowing the bank to continue operations would not only risk public trust in cooperative banking but could also set an undesirable precedent.
Aftermath of License Cancellation
With the cancellation in place, the bank is now prohibited from conducting the business of banking, which includes:
- Acceptance of fresh deposits.
- Repayment of existing deposits.
- Any activity defined under Section 5(b) read with Section 56 of the Banking Regulation Act.
Furthermore, the Registrar of Cooperative Societies, Gujarat, has been requested to initiate winding-up proceedings and appoint a liquidator.
Relief for Depositors: DICGC Insurance Coverage
The cancellation, though alarming, is accompanied by a safeguard — the Deposit Insurance and Credit Guarantee Corporation (DICGC) mechanism. Under the DICGC Act, 1961, each depositor is entitled to receive up to ₹5,00,000 per depositor across all deposits in the same right and capacity.
As per RBI’s data:
- 98.51% of the depositors are entitled to receive full deposit amounts under DICGC cover.
- A total of ₹13.94 crore has already been disbursed by DICGC to eligible depositors as on March 31, 2024, based on claims received.
This ensures significant protection to small depositors and supports RBI’s objective of safeguarding public funds.
Broader Implications for the Banking Sector
The RBI’s action sends a strong message to other co-operative banks that regulatory compliance and financial prudence are non-negotiable. This cancellation underscores the following systemic priorities:
- Prompt Corrective Measures (PCM): Banks under stress must invoke internal restructuring or seek merger support at early stages.
- Stricter Monitoring of UCBs: Urban Cooperative Banks need to strengthen governance, ensure capital adequacy, and enhance asset quality monitoring.
- Customer Awareness: Depositors must be educated about deposit insurance, risk factors, and periodic review of their banking relationships.
Conclusion
The cancellation of the license of Colour Merchants Co-operative Bank Ltd. highlights the RBI’s firm stance on maintaining systemic stability and depositor protection. While unfortunate for the bank’s legacy, this move preserves the broader trust in the cooperative banking sector. Going forward, it is imperative for co-operative institutions to prioritize financial health, regulatory compliance, and transparency to ensure long-term sustainability.
Stox N Tax 
Leave a comment