Nearly 98% of Depositors Eligible to Receive Full Amount Through DICGC Insurance Cover
Mumbai (Economy India): The Reserve Bank of India (RBI) has cancelled the banking licence of Shri Mahalakshmi Urban Co-operative Credit Bank Limited, Gokak, Karnataka, citing inadequate capital, poor earning prospects and non-compliance with key regulatory requirements.
In an order dated June 16, 2026, issued under Section 22 read with Section 56 of the Banking Regulation Act, 1949, the central bank directed that the co-operative bank cease all banking operations with effect from the close of business on June 18, 2026.
The RBI has also requested the Registrar of Co-operative Societies, Karnataka, to initiate the bank’s liquidation process and appoint a liquidator.
Why Did RBI Cancel the Licence?
According to the RBI, the bank failed to comply with multiple provisions of the Banking Regulation Act and was found financially unviable.
The central bank said the bank:
- Did not have adequate capital and earning prospects.
- Failed to comply with statutory requirements under Sections 11(1) and 22(3) of the Banking Regulation Act.
- Was unable to protect the interests of depositors.
- Would be incapable of repaying depositors in full given its current financial position.
- Could adversely impact public interest if allowed to continue operations.
Following the licence cancellation, the bank has been prohibited from carrying out any banking business, including accepting fresh deposits or repaying existing deposits.
What Happens to Depositors?
The RBI said depositors will be protected under the deposit insurance framework administered by the Deposit Insurance and Credit Guarantee Corporation (DICGC).
Under the provisions of the DICGC Act, 1961, each depositor is entitled to receive deposit insurance coverage of up to ₹5 lakh.
According to data submitted by the bank, around 97.90% of depositors are eligible to receive the full amount of their deposits through the insurance mechanism.
As of June 9, 2026, the DICGC had already paid ₹88.21 crore towards insured deposits to eligible customers who submitted their consent under Section 18A of the DICGC Act.
Impact on the Co-operative Banking Sector
The RBI has intensified supervision of urban co-operative banks in recent years to strengthen depositor protection and improve governance standards.
Regulatory action against financially weak co-operative banks aims to preserve confidence in the banking system and ensure timely protection of depositors’ interests.
The latest action underscores the central bank’s continued focus on maintaining financial stability and enforcing prudential norms across the co-operative banking sector.
(Economy india)
