The Reserve Bank of India has on November 17,
2005 rejected the licence application of the Kotagiri Co-operative Urban Bank
Ltd., Kotagiri, in view of the fact that it had ceased to be solvent. All efforts
to revive it had failed and the depositors were being inconvenienced by continued
uncertainty. The Registrar of Co-operative Societies, Chennai has also been
requested to issue an order for winding up the bank and appoint a liquidator
for the bank. It may be highlighted that on liquidation every depositor is entitled
to repayment of his deposits up to a monetary ceiling of Rs.1,00,000/- from
the Deposit Insurance and Credit Guarantee Corporation (DICGC).
The Reserve Bank of India decided to reject
the licence application of the Kotagiri Co-operative Urban Bank Ltd, Kotagiri,
Tamil Nadu as a final step after examining all the options for revival of the
bank and in order to protect the interest of the depositors. The bank was classified
as weak on February 7,1996.The financial position of the bank deteriorated considerably
from 2001-2002 onwards and the bank was advised by the Reserve Bank of India
to go out of the purview of the Banking Regulation Act 1949 (AACS) on October
26, 2002. However, no progress was made in this direction by the bank. The statutory
inspection with reference to its position as on March 31, 2004 revealed further
deterioration in its financial condition and its deposits were getting eroded
as realisable value of paid-up capital and reserve was in the negative. In view
of the bank’s precarious financial position and considering that it was not
in a position to repay its deposits, a show cause notice under Section 22 of
the Act, ibid, was issued to the bank on November 4, 2004 calling upon it to
show cause as to why its application for banking licence dated October 31,1976
should not be rejected and the bank taken into liquidation. In the reply submitted
by the bank to the show cause notice, the bank had projected to reduce the net
NPAs and enhance its share capital by March 31,2005. A scrutiny of the bank’s
books of accounts carried out by the Reserve Bank of India with reference to
its position as on March 31,2005 revealed that the bank had failed to achieve
the targets projected by it for the year ended March 31,2005 and its financial
position was precarious. With a view to protecting the interests of the present
and future depositors, the Reserve Bank of India issued directions on September
21,2005 to the bank under Section 35A of the Act, ibid, restricting its operations.
As the bank did not have a viable plan of action for revival and the chances
of its revival were remote, the Reserve Bank of India took the extreme measure
of rejecting the licence application of the bank in the interest of the bank's
depositors. With the rejection of its application for licence and with the commencement
of liquidation proceedings, the process of paying the depositors of the Kotagiri
Co-operative Urban Bank Ltd., Kotagiri, the amount insured as per the DICGC
Act would be set in motion.
Consequent to the rejection of its licence application,
the Kotagiri Co-operative Urban Bank Ltd., Kotagiri, is prohibited from carrying
on ‘banking business’ as defined in Section 5(b) of the Act, ibid, including
acceptance and repayment of deposits.
For any clarifications, depositors may approach
Shri. K.M. Abraham, Deputy General Manager, Urban Banks Department, Reserve
Bank of India, Chennai-600001. His contact details are as below: