The Reserve Bank of India (RBI) has cancelled licence of Panvel-based Karnala Nagari Sahakari Bank as the bank does not have adequate capital and earning prospects. RBI says 95% of depositors of the bank will receive full amounts of their deposits from Deposit Insurance and Credit Guarantee Corporation (DICGC).
The bank ceased to carry on banking business with effect from the close of business on Friday.
RBI had issued an order on 9 August 2021, to bring license cancellation into effect. In a release, RBI says the lender ceases to carry on banking business with effect from the close of business on 13 August 2021.
“As per the data submitted by the bank, 95% of the depositors will receive full amounts of their deposits from DICGC,” RBI says.
However, this effectively means, balance 5% of the depositors will receive only up to Rs5 lakh irrespective of how much money they had deposited in the bank, subject to the provisions of the DICGC Act.
“The Commissioner for Cooperation and Registrar of Cooperative Societies, Maharashtra has also been requested to issue an order for winding up the bank and appoint a liquidator for the bank,” the RBI said.
Citing the reasons behind the cancellation of the license of Karnala Nagari Sahakari Bank, the RBI said that the bank does not have adequate capital and earning prospects. “As such, it does not comply with the provisions of section 11(1) and section 22 (3) (d) read with section 56 of the Banking Regulation Act, 1949,” the central bank noted.
The RBI also highlighted that Karnala Nagari Sahakari Bank has also failed to comply with the requirements of section 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;
The continuance of the bank is prejudicial to the interests of its depositors. The bank with its present financial position would be unable to pay its present depositors in the full and public interest would be adversely affected if the bank is allowed to carry on its banking business any further.
In separate news, the enforcement directorate (ED), earlier this week, filed a prosecution complaint (chargesheet) against former member of legislative assembly (MLA) Vivekanand Shankar Patil and Karnala Nagari Sahakari Bank alleging fraud. ED says between 2008 and 2018, Mr Patil, the former chairman of the bank, siphoned Rs560 crore from the bank through 63 fictitious accounts to the loan accounts of Karnala Charitable Trust and Karnala Sports Academy, which were founded and controlled by him.
The ED, in a statement says, “To hide the siphoning, the available funds were routed to these fictitious accounts and from these accounts to the several bank accounts of entities founded or controlled by Mr Patil.”
The ED complaint has alleged that the siphoned money was utilised by Karnala Charitable Trust and Karnala Sports Academy for construction of properties such as a sports complex, college, schools and for other personal gains. The ED says the money used for such constructions was projected “as un-tainted in contravention of offence of money laundering”.
The money laundering case of ED against Mr Patil is based on a first information report (FIR) registered by the economic offences wing (EOW) of Navi Mumbai police last year. The police booked 76 persons, including the former MLA, for cheating, forgery and criminal breach of trust, in connection with the bank fraud detected by the banking regulator.
An RBI audit of the 17 branches of the bank found that several loan accounts were opened without due diligence and the money loaned to these customers was misappropriated.
In June 2020, the RBI had restricted withdrawals at Rs500 per depositor across all accounts of Karnala Nagari Sahakari Bank.
Last year, RBI had also said the bank cannot grant loans and advances, make any investment and incur any liability, including acceptance of fresh deposits without its approval. The bank was also prohibited from disbursing any payment, or entering any arrangement to sell, transfer or dispose of any of its properties or assets.
Separately, the RBI penalised three cooperative banks for deficiencies in regulatory compliance.
The central bank has imposed a penalty of Rs25 lakh each on Madhya Pradesh Rajya Sahakari Bank Maryadit, Bhopal, and the Greater Bombay Cooperative Bank Ltd, Mumbai. The RBI has also imposed a penalty of Rs50,000 on Jalna People’s Cooperative Bank Ltd from Maharashtra.
