RBI Cancels Licence of Shirpur Merchants’ Co-operative Bank

Source: ET

Subject: Banking / Financial Regulation

• Context: The Reserve Bank of India (RBI) has cancelled the banking licence of The Shirpur Merchants’ Co-operative Bank, Maharashtra, effective from the close of business on April 6, 2026.
• Reason for Action: The bank lacks adequate capital and earning prospects. In its current state, it would be unable to pay its present depositors in full, making its continued operation prejudicial to depositor interests.
• Liquidation Process: The RBI has requested the Commissioner for Cooperation and Registrar of Cooperative Societies, Maharashtra, to issue a winding-up order and appoint a liquidator.
• Prohibition: The bank is strictly prohibited from conducting any banking business, including the acceptance and repayment of deposits, with immediate effect.

Key Concepts & Regulatory Framework

1. Deposit Insurance (DICGC Coverage)

When a bank’s licence is cancelled and it enters liquidation, depositors are protected by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the RBI.

• Limit: Every depositor is entitled to receive a deposit insurance claim amount of up to ₹5 lakh (inclusive of principal and interest).
• Status for Shirpur Bank: Based on submitted data, approximately 99.7% of depositors are entitled to receive the full amount of their deposits from DICGC. As of January 31, 2026, DICGC had already paid out ₹48.95 crore to willing depositors.

2. Grounds for Licence Cancellation (Banking Regulation Act, 1949)

The RBI typically invokes Section 22 and Section 56 of the Banking Regulation Act to cancel licences. The primary “Triggers” are:

• Failure to comply with minimum capital and reserve requirements.
• Inability to pay present and future depositors.
• The affairs of the bank being conducted in a manner detrimental to the interests of its depositors.

3. Cooperative Federalism in Banking

Co-operative banks in India face “Dual Regulation”:

• Banking Functions: Regulated by the RBI (licensing, SLR/CRR, interest rates).
• Administrative Functions: Regulated by the Registrar of Cooperative Societies (RCS) (management, elections, audits, and winding up). This is why the RBI requests the RCS to appoint a liquidator.

Examination Focused MCQs

Q1. Under which statutory body is the insurance for bank deposits in India provided?

A) SEBI

B) IRDAI

C) DICGC

D) PFRDA

Q2. What is the maximum insurance cover provided by DICGC to a depositor in a failed bank (including principal and interest)?

A) ₹1 Lakh

B) ₹2 Lakh

C) ₹5 Lakh

D) ₹10 Lakh

Q3. Which of the following is the primary reason cited by the RBI for cancelling the licence of Shirpur Merchants’ Co-operative Bank?

A) Excessive profit-making

B) Lack of adequate capital and earning prospects

C) Opening too many branches in rural areas

D) High employee turnover

Q4. In the context of Co-operative Banks, who has the authority to issue the final ‘winding up’ order and appoint a liquidator?

A) Governor of the RBI

B) Finance Minister of India

C) Registrar of Cooperative Societies (RCS) of the state

D) Securities and Exchange Board of India

Q5. When a bank’s licence is cancelled by the RBI, it is prohibited from “Banking Business” under the Banking Regulation Act. This primarily includes:

A) Selling insurance only

B) Acceptance and repayment of deposits

C) Hiring new staff

D) Paying electricity bills

Answer Key:

1. C) DICGC (Deposit Insurance and Credit Guarantee Corporation).
2. C) ₹5 Lakh.
3. B) Lack of adequate capital and earning prospects.
4. C) Registrar of Cooperative Societies (RCS) of the state (RBI handles the banking side, RCS handles the administrative/winding-up side).
5. B) Acceptance and repayment of deposits.