In view of the fact that The Mirzapur Urban Co-operative Bank Ltd., Mirzapur (Uttar Pradesh), had ceased to be solvent, all efforts to revive it, had failed and the depositors were being inconvenienced by continued uncertainty, the Reserve Bank of India [RBI] delivered the order cancelling its licence to the bank and the same is effective from the close of business as on September 11, 2014. The Registrar of Co-operative Societies, Uttar Pradesh has also been requested to issue an order for winding up the bank and appoint a liquidator for the bank. It may be highlighted that on liquidation, every depositor is entitled to repayment of his/her deposits up to a monetary ceiling of ₹ 1,00,000/- (Rupees One lakh only) from the Deposit Insurance and Credit Guarantee Corporation (DICGC) under usual terms and conditions.

The bank was granted a licence by RBI on February 9, 1990 to commence banking business. The latest statutory inspection of the bank conducted under Section 35 of the Banking Regulation Act, 1949 (AACS) with reference to its financial position as on March 31, 2013, interalia, revealed that the real or exchangeable value of paid-up share capital and reserves of the bank was assessed at (-) ₹ 325.39 lakh with erosion in the deposits to the extent of 27.03%. The bank’s CRAR was assessed at (-) 149.8% as against the regulatory requirement of 9%, accumulated losses reported by the bank as on March 31, 2013 stood at ₹ 217.09 lakh with gross and net NPAs as on March 31, 2013 assessed at ₹ 421.67 lakh (84.64% of the gross loans and advances) and ₹ 256.37 lakh (77.01% of the net advances), respectively. The net loss of the bank was assessed at ₹ 334.27 lakh during 2012-2013. In view of the large amount of NPAs, substantial accumulated losses, poor chances of recovery for improvement in financial health of the bank, revival prospects of the bank in the near future are bleak.

The bank’s statutory inspection with reference to its financial position as on March 31, 2009 revealed that the bank did not meet the minimum regulatory requirement of 9% CRAR as the same was 3.83%. The bank had violated prescribed regulatory ceiling for single borrower, for unsecured advances in a large number of cases. The Gross and Net NPAs were very high and stood at 54.14% and 48.74% respectively. The bank was not adhering to IRAC norms and KYC norms. As recommended by TAFCUB, the bank was advised to submit an action plan within six weeks for revival and step up recovery efforts. The financial indicators of the bank, however, continued to deteriorate as was revealed during inspections conducted with reference to its financial position as on March 31, 2009 to March 31, 2012. The bank was issued operational instructions as per TAFCUB recommendations on December 14, 2011 and was advised to submit an action plan for its revival duly approved by the Board of Directors. The bank’s management was also advised that in case it would not be possible for the bank to achieve the viability norms within the specified period as mentioned above, it may explore the possibility of merger of the bank with a sound co-operative bank or convert the bank into a society by repaying the deposits of non-members. Taking into consideration the recommendations of 17th TAFCUB meeting, the bank was issued additional operational instructions on November 27, 2012 inter-alia not to increase its aggregate advances and deposits beyond the level of advances and deposits as on November 26, 2012. These instructions also prohibited the bank from permitting premature withdrawal of term deposits, taking on fresh high risk weighted exposures, sanction of fresh unsecured loans and required the bank to invest in assets carrying lower risk weights, besides augmenting its capital.

As on March 31, 2013, the erosion of deposit had reached the level of 27.03%. In view of the above, the bank was placed under all-inclusive directions under Section 35A of BR Act, which was extended till September 11, 2014.

Serious deficiencies as mentioned above revealed that the affairs of the bank were being conducted in a manner detrimental to the interests of the depositors. The bank did not comply with the provisions of Sections 11(1), 18, 22(3) (a), 22(3) (b) and 31 of the Act, ibid. The bank was, therefore, issued a show cause notice vide letter dated February 13, 2014 to show cause as to why the licence granted to it to carry on banking business under Section 22 of the Act, ibid, on July 11, 1986 should not be cancelled and the bank be taken into liquidation. The bank submitted its reply to the SCN vide letter dated March 28, 2014 which was examined but was not found to be satisfactory. Not only are the bank’s replies to the show cause notice untenable but also it has not made any satisfactory proposal for revival / improvement in the functioning of the bank. A merger proposal with respect to the bank was received in June 2014 which was also not found viable, as it did not meet the regulatory requirements. As such, there is no viable merger proposal under consideration.

Therefore, RBI took the extreme measure of cancelling the licence of the bank in the interest of bank's depositors. With the cancellation of licence and commencement of liquidation proceedings, the process of paying the depositors of The Mirzapur Urban Co-operative Bank Ltd., Mirzapur (Uttar Pradesh) the amount insured as per the DICGC Act, will be set in motion subject to the terms and conditions of the Deposit Insurance Scheme.

Consequent to the cancellation of its licence, The Mirzapur Urban Co-operative Bank Ltd., Mirzapur (Uttar Pradesh) is prohibited from carrying on ‘banking business’ as defined in section 5(b) of the Act.

For any clarifications, depositors may approach Shri P. Gangte, Deputy General Manager, Urban Banks Department, Lucknow Regional Office, Reserve Bank of India, Mumbai, whose contact details are as below:

Postal Address: Urban Banks Department, Reserve Bank of India, 8-9 Vipin Khand, Gomti Nagar, Lucknow – 226010; Telephone Number - 0522 2304878, Fax Number - 0522 2307973; Email.

Ajit Prasad

Assistant General Manager

Licence cancellation bars the bank from banking business and triggers insured deposit repayment under DICGC terms. RBI cancelled the bank's licence effective September 11, 2014 because insolvency, sustained losses, severe erosion of capital and deposits, and very high NPAs demonstrated lack of viability; the Registrar of Co-operative Societies was requested to wind up and appoint a liquidator, the bank is prohibited from carrying on banking business, and insured deposit repayment will proceed under the DICGC scheme subject to its terms.