The Reserve Bank of India (RBI) has revoked the licences of at least 12 urban cooperative banks, citing insufficient capital, poor earnings, and inability to meet liabilities. The most recent such action involved the Karwar Urban Co‑operative Bank in Karnataka, whose licence was withdrawn effective July 23 for failing to maintain regulatory thresholds.
Signs of Systemic Weakness in Co‑operative Banks
This sweeping regulatory crackdown reflects broader vulnerabilities in India’s urban cooperative banking sector. Since early 2024, the RBI has cancelled licences of multiple entities—from Banaras Mercantile Co‑operative in Varanasi to Lucknow’s HCBL. Many of these banks failed to meet minimum capital adequacy and displayed deteriorating financial health. The regulator concluded that continued operations would threaten depositor interests.
One case under scrutiny earlier this year was New India Co‑operative Bank, which faced supervisory restrictions—not a licence cancellation—but highlighted systemic vulnerabilities through a ₹122 crore alleged fraud. That led to moratoriums on withdrawals, appointment of administrators, and consideration of limited emergency payouts up to ₹5 lakh.
How Safe Are Depositors’ Funds?
Under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme, every depositor is insured for up to ₹5 lakh, inclusive of principal and interest, per bank . In the case of Karwar Bank, the RBI estimates that 92.9% of depositors will recover their full amounts via DICGC payouts.
Authorities aim to credit insured amounts within 90 days of liquidation, following submission of depositor lists and claim forms . For deposits exceeding ₹5 lakh, funds remain in the hands of the court-appointed liquidator and depend on asset recovery a process that is often prolonged and uncertain.