Financial Mismanagement, Regulatory Breaches Trigger RBI’s Stringent Action Across India. The Reserve Bank of India (RBI) has cancelled the licenses of several financial institutions, including a cooperative bank in Lucknow and two non-banking financial companies (NBFCs), citing financial instability and serious violations of outsourcing norms.
RBI Pulls the Plug on Lucknow-Based HCEL Co-operative Bank
The Reserve Bank of India (RBI) has revoked the licenses of three financial institutions over the past month, citing serious concerns regarding capital adequacy, regulatory violations, and threats to depositor interests.
At the center of this regulatory storm is HCEL Co-operative Bank Ltd., headquartered in Lucknow. The RBI announced that the bank’s license was cancelled due to a sustained lack of sufficient capital and earnings potential. The central bank deemed continued operation of the institution as detrimental to the interests of depositors. It was stated by the RBI that the bank’s financial condition was so poor that it was not even in a position to repay depositors. Hence, it can neither accept fresh deposits nor honour withdrawals.
Under the Deposit Insurance and Credit Guarantee Corporation Act, 1961, depositors are eligible to claim up to ₹5 lakh of insured deposits.
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Widening the Net: NBFCs Also Face the Heat
The crackdown didn’t stop at cooperative banks. The RBI also cancelled the certificates of registration for two NBFCs: M/S NY Leasing Private Limited, based in South Delhi & RL Investment and Finance Company Limited, based in Kanpur.
These companies were found guilty of violating outsourcing guidelines, a core pillar of responsible lending operations. RBI’s inspection reports highlighted lapses in customer due diligence, loan disbursement protocols, and Know Your Customer (KYC) compliance. Additionally, the firms failed to adhere to the supervisory instructions governing financial service outsourcing.
The violations included unauthorized delegation of sensitive financial services to third parties without proper regulatory checks — an alarming deviation from standard RBI mandates. After the cancellation of their Certificate of Registration (CoR), these NBFCs are barred from conducting any financial business as Non-Banking Financial Companies under Indian law.
The latest action is part of a wider trend observed through May 2025. Over the past 31 days alone, the RBI has acted against multiple financial institutions across the country — issuing fines, cancelling licenses, and tightening scrutiny. According to RBI notifications, at least one bank and one NBFC have had their licenses cancelled in this time span, with multiple enforcement measures also underway against others.
The sweeping actions appear to be part of a deliberate cleanup strategy by the RBI to enhance consumer confidence and discipline errant institutions.
About the author – Prakriti Jha is a student at National Forensic Sciences University, Gandhinagar, currently pursuing B.Sc. LL.B (Hons.) with a keen interest in the intersection of law and data science. She is passionate about exploring how legal frameworks adapt to the evolving challenges of technology and justice.