The Pusad Urban Cooperative Bank Ltd., Pusad
1. Key Regulatory Details
- Regulatory Authority: Reserve Bank of India (RBI)
- Action Date: Close of Business on November 07, 2025
- Statute Invoked: Section 35 A read with Section 56 of the Banking Regulation Act, 1949
- Primary Restriction: Prohibited from granting/renewing loans, making investments, accepting fresh deposits, and disbursing payments without prior written RBI approval.
- Withdrawal Limit: ₹5,000/- (Rupees Five Thousand only) per depositor. Loan set-off against deposits is permitted.
- Duration: Six months from the close of business on November 07, 2025, subject to review.
- Depositor Protection: DICGC coverage up to ₹5,00,000/- per eligible depositor.
2. Root Cause Analysis (RCA)
The press release explicitly identifies two core issues leading to the RBI’s intervention, which serve as the root causes:
- Deteriorating Liquidity Position: This is the primary trigger, indicating a structural mismatch between the bank’s short-term assets and short-term liabilities, likely caused by:
- High Non-Performing Assets (NPAs), preventing the recycling of funds.
- Poor asset-liability management (ALM) practices.
- A potential ‘run’ on the bank or continuous withdrawals exceeding fresh deposit mobilization.
- Lack of Concrete Remedial Efforts: Despite engagement from the RBI, the Board and Senior Management failed to implement effective plans to reverse the liquidity decline and protect depositors’ interests. This points to a critical failure in internal governance, accountability, and the ability to execute a turnaround strategy.
3. Recommended Preventive Controls
To prevent recurrence and restore financial health, the bank (and similar cooperative banks) should implement the following controls:
- Strengthened Asset-Liability Management (ALM): Establish a robust ALM committee to monitor and manage liquidity risk on a daily basis, focusing on maintaining adequate Liquidity Coverage Ratio (LCR).
- Aggressive NPA Resolution Strategy: Implement immediate and aggressive policies for recovery of bad loans, including legal action, compromise settlements, and transparent auctioning of collateral to improve cash flows.
- Enhanced Credit Underwriting: Tighten loan sanctioning processes to ensure strict adherence to internal and regulatory guidelines, focusing on borrower creditworthiness and adequate collateral valuation.
- Board and Management Overhaul: The RBI may need to supersede the current Board and appoint an Administrator to ensure independent governance and the execution of a corrective action plan (CAP).
4. Key Lessons Learnt
This directive serves as a crucial reminder for all financial institutions, particularly Urban Cooperative Banks (UCBs):
- Proactive Governance is Non-Negotiable: Regulatory engagement is a warning signal. Failure of the Board and Senior Management to act decisively on identified risks (especially liquidity) will result in severe regulatory penalties.
- Liquidity is Paramount: While profitability matters, cash flow and maintaining a strong liquidity buffer are critical for depositor confidence and operational sustainability. Poor liquidity management is often the fastest path to regulatory intervention.
- Depositor Interest First: All strategic decisions must prioritize the protection of depositor funds. Failure to protect these interests, as cited by the RBI, justifies the imposition of strict directions.
- Compliance is Continuous: Banking licenses are contingent on continuous compliance and demonstrating financial prudence, not just on meeting initial criteria.