RBI Cancels Licence Of Mahabhairab Cooperative Urban Bank Ltd Due To Financial Non-Compliance

The bank was found to lack adequate capital and its earnings prospects were insufficient. This inadequacy in financial resources directly contravenes the provisions outlined in the Banking Regulation Act, 1949.

Section 11(1) of the Banking Regulation Act, 1949 states that every bank must maintain a minimum level of paid-up capital and reserves. This requirement ensures that banks have sufficient financial backing to operate effectively and meet their obligations to depositors.

Section 22(3)(d) focuses on the operational and financial discipline of banks. It mandates that banks must adhere to certain standards and practices to ensure they operate soundly and in accordance with regulatory norms.

Section 56 provides the Reserve Bank of India (RBI) with the authority to cancel a bank's licence if it fails to meet regulatory requirements. This section allows the RBI to take action against banks that exhibit serious deficiencies, such as inadequate capital, poor financial health, or non-compliance with other provisions of the Banking Regulation Act.

Further, RBI found that the bank failed to comply with the requirements of Sections 22(3) (a), 22(3) (b), 22(3) (c), 22(3) (d) and 22(3) (e) read with Section 56 of the Banking Regulation Act, 1949

Section 22(3)(a) of the Banking Regulation Act mandates that a bank must not commence or continue its business without a valid licence from the RBI. Section 22(3)(b) requires banks to maintain adequate liquidity to meet their financial obligations. Adequate liquidity involves having sufficient cash or easily convertible assets to cover withdrawal demands and other financial commitments.

Section 22(3)(c) states that banks must adhere to prudent banking practices including effective risk management and robust internal controls. The banks are required to maintain a prescribed level of paid-up capital and reserves.

Section 22(3)(e) states that banks follow the directions issued by the RBI regarding their operations and financial management.

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