RBI cancels the licence of Shree Mahalaxmi Urban Co-operative Credit Bank Ltd., Gokak, Karnataka
The Reserve Bank of India (RBI) has cancelled the licence of Shree Mahalaxmi Urban Co-operative Credit Bank Ltd., Gokak, Karnataka, as the bank is not financially strong enough to continue its operations safely. According to RBI, the bank did not have adequate capital and had poor earning prospects, which means it lacked sufficient financial resources and was not generating enough income to remain viable. Therefore, it failed to meet the requirements of Section 11(1) and Section 22(3)(d) of the Banking Regulation Act, 1949.
The RBI also found that the bank did not satisfy several conditions required for obtaining and retaining a banking licence under Sections 22(3)(a), 22(3)(b), 22(3)(c), 22(3)(d), and 22(3)(e) of the Banking Regulation Act, 1949. These provisions require a bank to have sound management, adequate capital, proper business prospects, and operations that are not harmful to the interests of depositors.
RBI further stated that allowing the bank to continue its business would be harmful to the interests of depositors. The financial condition of the bank had become so weak that it would not be able to repay all its depositors in full. In such a situation, continuing banking operations could increase losses for customers and create further financial problems.
Meaning of the Relevant Sections
Section 11(1) – This section requires a bank to maintain a minimum level of paid-up capital and reserves. A bank that does not have sufficient capital cannot safely continue its banking operations.
Section 22(3)(a) – The affairs of the bank should not be conducted in a manner that is harmful to the interests of present or future depositors.
Section 22(3)(b) – The bank should have a sound financial position and be capable of carrying on banking business properly.
Section 22(3)(c) – The management and affairs of the bank should be conducted in a responsible and efficient manner.
Section 22(3)(d) – The bank should have adequate capital structure and reasonable earning prospects for future operations.
Section 22(3)(e) – Granting or continuing the banking licence should be in the public interest.
Section 56 – This section applies the provisions of the Banking Regulation Act to co-operative banks, with necessary modifications. Since Shree Mahalaxmi Urban Co-operative Credit Bank was a co-operative bank, these provisions were applicable through Section 56.
What will happen to bank customers now?
In order to protect depositors, every depositor of the bank is eligible to receive deposit insurance of up to ₹5 lakh from the Deposit Insurance and Credit Guarantee Corporation (DICGC), subject to the provisions of the DICGC Act, 1961. This means that if a depositor’s total eligible deposits in the bank are up to ₹5 lakh, the entire amount is insured and can be claimed through DICGC.
According to the data submitted by the bank, around 97.90% of the depositors were eligible to receive the full amount of their deposits through deposit insurance when the RBI imposed All Inclusive Directions on the bank. Further, as of June 9, 2026, DICGC had already paid ₹88.21 crore towards insured deposits under Section 18A of the DICGC Act, 1961, based on claims received from willing depositors of the bank. This indicates that most depositors are protected despite the cancellation of the bank’s licence.
Gauhati Co-operative Urban Bank Ltd
In another update, the RBI has extended restrictions on Gauhati Co-operative Urban Bank Ltd., Guwahati for a further period of three months till September 17, 2026, subject to review. This bank is also suffering from financial issues.
