Yashwant Co-operative Bank Licence Cancelled by RBI
Why in the news
RBI shut down yet another small urban co-operative bank by cancelling the licence of the Phaltan-based Yashwant Co-operative Bank, citing weak capital and poor earning outlook.
Key facts
- Bank: Yashwant Co-operative Bank of Phaltan, in Maharashtra, an urban co-operative bank (UCB).
- Cut-off: banking ended at close of business on 19 May 2026.
- Reasons: inadequate capital and lack of earning prospects.
- Next step: Maharashtra’s cooperation commissioner and registrar of societies was asked to order winding up and appoint a liquidator.
- Legal basis: Banking Regulation Act, 1949, Sections 22 and 56 (read together).
Depositor protection
| Item | Detail |
|---|---|
| Insurer | DICGC |
| Cover | Up to ₹5 lakh per depositor per bank (principal plus interest) |
| Depositors fully covered | 99.02% |
| Already paid | ₹106.96 crore, figure as of 20 April 2026 |
Background
- DICGC: wholly-owned RBI subsidiary, formed in 1978 through a merger of the Deposit Insurance Corporation (set up 1962) with the Credit Guarantee Corporation of India (set up 1971); governed by the DICGC Act, 1961.
- It insures savings, fixed, current and recurring deposits in commercial banks, RRBs, local area banks and co-operative banks.
- In February 2020 the cap was lifted from ₹1 lakh to ₹5 lakh; a 2021 amendment allows interim payouts within 90 days of a moratorium.
- UCBs face dual regulation: RBI for banking functions, State Registrar for co-operative matters such as membership, elections and audit.
- The Banking Regulation (Amendment) Act, 2020 brought co-operative banks fully under RBI, with wider powers over management, mergers and board supersession.
- PMC Bank crisis (September 2019): about 73% of loans went to one real-estate group (HDIL); PMC later merged with Unity Small Finance Bank in 2022.
Concerns
- Small capital base, concentrated lending and weak governance make small UCBs fragile.
- Limited technology and risk capacity, and failure to merge with stronger banks.
- Dual regulation causes coordination gaps in stress cases, and public awareness of insurance limits is vital.
- Most small-UCB failures stem from capital gaps, weak boards, concentration risk and non-viable business models.
- Lessons: insurance shields most small savers, and depositors should weigh a bank’s size, capital and reputation.
- How liquidation proceeds: assets are realised, loans recovered, and dues paid in legal priority from secured creditors to preferential, unsecured creditors and finally members.
Exam angle
- Provisions used for cancellation: Sections 22 and 56 of the BR Act, 1949.
- Insurance ceiling: ₹5 lakh per depositor per bank.
- Liquidation order: RBI cancels licence, Registrar orders winding up, liquidator appointed, DICGC pays insured deposits.