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Thursday, November 17, 2011

RBI cancels licence of Charminar Co-op Bank

The Reserve Bank of India has cancelled the licence of Hyderabad-based Charminar Co-operative Urban Bank as all efforts to turnaround it had failed. In a press release issued on Wednesday, the RBI said that depositors were being inconveniences by the continued uncertainty.

The Registrar of Co-operative Societies, Andhra Pradesh State has also been requested to issue an order for winding up the bank and appoint a liquidator for the bank, RBI said.

Consequent to the cancellation of its licence, the bank is prohibited from carrying on ‘banking business' including acceptance and repayment of deposits.

On liquidation, every depositor is entitled to repayment of deposits up to a ceiling of Rs 1 lakh from the Deposit Insurance and Credit Guarantee Corporation (DICGC).

The beginnings

The problems with Charminar Bank started in February 2002 when the RBI discovered that the bank was not in a position to meet the demand of its depositors. To protect the interests of the depositors, the RBI restricted the bank from accepting and repaying deposits to a maximum of Rs 1,000 per depositor.

With a view to restructure and revive the bank, the Government of Andhra Pradesh notified a Scheme of Reconstruction in consultation with RBI which came into force with effect from March 3, 2003. The Scheme, however, failed to yield the desired results. The subsequent inspections of the bank also revealed no improvement in its financial position, said RBI.

In terms of a revised restructuring scheme, all depositors of the bank having deposits above Rs 10 lakh were to be paid the balance amount in eight equal half-yearly instalments starting from March 2009.

Not from recoveries

It was observed that the last instalment (fifth) was paid not out of the cash generated from recovery of non-performing assets but by disposing of the fixed deposits maintained with other banks. The bank itself accepted that any further recovery in NPA accounts were not possible. Without any further recovery in NPA accounts, the bank can hardly make repayment of the next instalments, said the RBI.

Further, the Charminar Bank is not in a position to pay its depositors in full, the affairs of the bank are being conducted in a manner detrimental to the interests of its depositors, the financial position of the bank leaves no scope for revival and public interest will be adversely affected if the bank is allowed to carry on banking business, the RBI said.


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