LUCKNOW — In a move that underscores the tightening regulatory grip on India’s fragmented cooperative banking sector, the Reserve Bank of India announced on Friday that it had canceled the license of Indian Mercantile Co-operative Bank Ltd., a Lucknow-based institution. The directive, effective at the close of business on February 13, marks the end of the bank’s operations and the beginning of a court-supervised liquidation process.
A Sudden Cessation of Business
The Reserve Bank of India (R.B.I.) issued the order on February 11, invoking Section 22 of the Banking Regulation Act of 1949. By Friday evening, the bank was legally prohibited from conducting “banking” business, a definition that encompasses the fundamental pillars of the industry: the acceptance of new deposits and the repayment of existing ones.
The mandate effectively freezes the institution in time. Beyond the immediate halt of transactions, the central bank has formally requested that the Commissioner and Registrar of Cooperative for Uttar Pradesh issue a winding-up order. This procedural step will lead to the appointment of a liquidator, who will be tasked with untangling the bank’s remaining assets and liabilities.
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The Findings of the Regulator
The decision to shutter the Lucknow institution was not arbitrary, but rather the result of a specific set of statutory failures documented by the central bank. In its official communication, the R.B.I. cited a lack of “adequate earning prospects,” noting that the bank failed to comply with multiple sub-sections of the Banking Regulation Act.
Specifically, the regulator found that the bank’s financial health had deteriorated to a point where it no longer met the requirements of Sections 22(3) (b), (c), (d), and (e). These codes generally govern the maintenance of capital and the long-term viability of a banking license. The R.B.I.’s assessment concluded that the bank lacked the necessary framework to sustain its operations without risking further depletion of its resources.
The Mandate of Depositor Interest
Central to the R.B.I.’s justification was the protection of the public. The regulator stated that the “continuance of the bank will be prejudicial to the interests of its depositors,” an analytical standard used when a bank’s fiscal trajectory suggests it may eventually be unable to meet its obligations.
By intervening now, the central bank argued that it was acting in the broader public interest. The assessment suggests that allowing the bank to carry on its banking business any further would have adversely affected the stability of the local financial ecosystem. The move reflects a broader trend in Indian financial regulation, where the R.B.I. has increasingly prioritized the solvency of cooperative banks to prevent localized financial contagion.
The Path to Liquidation
As the bank enters liquidation, the focus shifts to the recovery of funds. Under the current regulatory framework, depositors will be entitled to receive deposit insurance claim amounts. This process is governed by the Deposit Insurance and Credit Guarantee Corporation (DICGC), which provides a safety net for account holders up to a specific monetary ceiling—currently set at ₹5,00,000 (approximately $6,000) per depositor.
For the residents of Lucknow who relied on Indian Mercantile Co-operative, the immediate future involves a bureaucratic transition from active banking to the claims process. The liquidator, once appointed, will oversee the distribution of assets, while the DICGC will manage the initial payouts to eligible depositors, bringing a formal close to the institution’s presence in the Uttar Pradesh capital.
