RBI cancels Karad Janata Bank's licence; calls its continuance 'prejudicial to depositors'

The Reserve Bank of India (RBI) on Tuesday cancelled the licence of the Karad Janata Sahakari Bank Ltd, Karad, Maharashtra, as it does not have adequate capital and earning prospects. In a statement, the RBI said that more than 99% of the depositors of the bank will get full payment of their deposits from Deposit Insurance and Credit Guarantee Corporation (DICGC).

'Public interest would be adversely affected'      

With the cancellation of licence and commencement of liquidation proceedings, the process of paying the depositors of The Karad Janata Sahakari Bank will be set in motion. On liquidation, every depositor is entitled to repayment of his/her deposits up to a monetary ceiling of Rs 5 lakh only from the Deposit Insurance and Credit Guarantee Corporation (DICGC) as per usual terms and conditions.

'Bank does not have adequate capital'

Consequent to the cancellation of its licence from the close of business on December 7, the bank has been prohibited from conducting the business of 'banking' which includes acceptance of deposits and repayment of deposits with immediate effect. Giving details, the RBI said the bank was under "all-inclusive directions" since November 07, 2017. The Commissioner for Cooperation and Registrar of Cooperative Societies, Maharashtra has also been requested to issue an order for winding up the bank and appoint a liquidator for the bank.

The RBI said it cancelled the licence of the bank as it "does not have adequate capital and earning prospects". As such, it does not comply with the relevant provisions of the Banking Regulation Act, 1949. "The continuance of the bank is prejudicial to the interests of its depositors," it said and added the bank with its present financial position would be unable to pay its present depositors in full.  Also, the public interest would be adversely affected if the bank is allowed to carry on its banking business any further.

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RBI Governor on Lakshmi Vilas Bank and Yes Bank

Last week, RBI Governor Shaktikanta Das defended RBI's decisions to write-off bonds and shares of lenders during rescues of Lakshmi Vilas Bank and Yes Bank as legal ones taken in depositors' interest. Das said there cannot be a fixed template while dealing with cases of stress experienced by banks and working out solutions.

It can be noted that during the Yes Bank's rescue in March this year, over Rs 7,000 crore of additional tier-I bonds were written-off, while in LVB's case, tier-II bonds of nearly Rs 320 crore along with the entire outstanding shares, were written-off. Many of these instances were unprecedented and aggrieved parties have approached courts.

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(With agency inputs)