The Reserve Bank of India (RBI) has taken a significant step by cancelling the license of Urban Co-operative Bank (UCB) located in Sitapur, Uttar Pradesh. This decision comes into effect from the close of business on December 07, 2023, marking a crucial development in the banking sector.
Ceasing Banking Business
According to the RBI, the primary reason behind the license cancellation is that the Urban Co-operative Bank has ceased to carry on its banking business. The central bank has expressed concerns about the bank’s financial health, leading to the decision to terminate its operations.
Order for Winding Up
In addition to the license cancellation, the Commissioner and Registrar of Cooperative, Uttar Pradesh, have been approached by the RBI to issue an order for winding up the bank. The appointment of a liquidator is also on the agenda, emphasizing the severity of the situation.
Depositor Protection and Insurance
Upon liquidation, the RBI assures that every depositor will be entitled to receive a deposit insurance claim amount of their deposits. This entitlement is subject to a monetary ceiling of ₹5 lakh from the Deposit Insurance and Credit Guarantee Corporation (DICGC). Remarkably, 98.32 percent of the depositors, according to the bank’s submitted data, are eligible to receive the full amount of their deposits from DICGC.
Inadequate Capital and Earning Prospects
The RBI, in its statement, highlighted the Urban Co-operative Bank’s inadequate capital and earning prospects as key factors leading to the cancellation of its license. The central bank expresses concern about the bank’s ability to pay its depositors in full, leading to the conclusion that the continuance of the bank is prejudicial to the interests of its depositors.
Adverse Impact on Public Interest
The central bank firmly states that allowing the Urban Co-operative Bank to continue its banking business would be against public interest. With the bank’s present financial position rendering it unable to fulfill its obligations to depositors, the RBI underscores the adverse consequences that would arise if the bank were permitted to operate any further.
Important Questions Related to Exams
Q. What percentage of depositors are eligible to receive the full amount of their deposits from DICGC?
Answer: According to the bank’s submitted data, 98.32 percent of the depositors are eligible to receive the full amount of their deposits from DICGC.
Q. Why did the Reserve Bank of India (RBI) cancel the license of Urban Co-operative Bank (UCB) in Sitapur, Uttar Pradesh?
Answer: The license was canceled because the Urban Co-operative Bank ceased to carry on its banking business, raising concerns about its financial health.
Q: How does the RBI assure depositor protection upon liquidation?
Answer: Depositors are assured of receiving a deposit insurance claim amount of their deposits, subject to a monetary ceiling of ₹5 lakh from DICGC.