Lucknow: Signalling tougher oversight in the cooperative banking sector, the Reserve Bank of India (RBI) has cancelled the banking licence of Lucknow-based Indian Mercantile Cooperative Bank, forcing a complete halt to operations from February 13.
The central bank said the lender’s financial position had deteriorated significantly and that it had failed to comply with multiple provisions of the Banking Regulation Act, 1949, including Section 22(3). As a result, the bank is no longer permitted to accept fresh deposits or carry out withdrawals, transfers or any other banking transactions.
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In its order, RBI underlined that allowing the bank to continue operations in its present condition would have been detrimental to depositors’ interests and against broader public interest.
The regulator has also asked the Uttar Pradesh Cooperative Commissioner and Registrar to initiate liquidation proceedings and appoint an official liquidator, who will oversee the settlement of depositor claims based on the institution’s available assets.
Relief for most customers: Insurance cover up to ₹5 lakh
RBI clarified that, upon liquidation, every depositor will be entitled to receive deposit insurance of up to ₹5 lakh under the Deposit Insurance and Credit Guarantee Corporation (DICGC).
According to bank data reviewed by the regulator, nearly 98.75% of depositors fall within this insured limit — meaning the vast majority are expected to recover their entire savings.
Officials said that as of December 31, 2025, DICGC had already disbursed around ₹2.90 crore toward insured deposits after obtaining consent from eligible account holders. Remaining claims will be processed during the liquidation phase.
Earnings erosion, governance lapses
RBI noted that the bank’s ability to generate income had weakened over time, while capital support remained inadequate. Deteriorating asset quality and repeated regulatory non-compliance further amplified risks to deposors’ funds.
The central bank stressed that timely intervention was necessary to prevent deeper financial damage. Over the past few years, RBI has stepped up scrutiny of urban cooperative banks, focusing sharply on governance standards, capital adequacy and asset quality to identify stressed entities early and safeguard public money.
Officials said the present action is part of that broader clean-up drive.
What depositors should expect next
Once the liquidator is formally appointed, depositors will be invited to submit claims through a structured process. Amounts covered under DICGC insurance will be credited directly to eligible customers.
However, depositors with balances exceeding ₹5 lakh will have to wait for recoveries from the bank’s assets, with payouts dependent on how much is realised during liquidation.
Following news of the licence cancellation, several account holders were seen visiting bank branches in Lucknow seeking clarity. Authorities have urged customers to remain calm and rely only on official communication regarding claim procedures. Bank representatives have also assured depositors that updates related to insurance settlements will be shared in due course.
Tighter discipline for cooperative banks
The RBI’s move is being viewed as a strong signal to the cooperative banking ecosystem that weak financial foundations and regulatory lapses will no longer be tolerated.
Regulatory insiders say similar action could follow against other vulnerable lenders, as the central bank sharpens its focus on depositor protection and systemic stability.
For now, the closure of Indian Mercantile Cooperative Bank marks another decisive step in RBI’s ongoing effort to restore discipline in the cooperative sector — with depositor safety firmly at the centre of its supervisory agenda.
About the author — Suvedita Nath is a science student with a growing interest in cybercrime and digital safety. She writes on online activity, cyber threats, and technology-driven risks. Her work focuses on clarity, accuracy, and public awareness.
