1. Key Details of Regulatory Action
| Bank Name | Loknete R.D. (Appa) Kshirsagar Sahakari Bank Ltd, Niphad, Dist. Nashik |
| Regulatory Provision | Section 35 A read with Section 56 of the Banking Regulation Act, 1949 |
| Effective Date | Close of business on December 16, 2025 |
| Operational Restrictions | Prohibition on granting/renewing loans, investments, incurring liabilities, fresh deposits, and asset disposal without prior RBI approval. |
| Withdrawal Status | Full restriction on withdrawals from savings/current accounts (Loan set-off permitted subject to conditions). |
| Deposit Insurance | Depositors entitled to claim up to ₹5,00,000/- from DICGC. |
| Review Period | 6 months (Subject to review) |
2. Root Cause Analysis (RCA)
The RBI’s press release explicitly cites “material supervisory concerns emanating from developments in the bank” and a precarious “liquidity position”. While specific internal data is confidential, a standard RCA for such regulatory interventions typically points to the following systemic issues:
Asset-Liability Mismatch (ALM)
The specific restriction on withdrawals indicates a severe liquidity crunch. This typically occurs when short-term deposits are used to fund long-term, illiquid loans, leaving the bank unable to meet immediate withdrawal demands.
Deteriorating Asset Quality
“Material supervisory concerns” often correlate with a high Gross Non-Performing Asset (GNPA) ratio. When a significant portion of the loan book stops generating income, capital erodes, triggering regulatory thresholds.
Governance Deficits
In the cooperative banking sector, such directions are frequently precipitated by lapses in corporate governance, such as inadequate credit appraisal mechanisms or lending to related parties without sufficient collateral.
3. Preventive Controls & Mitigation Strategies
To avoid the recurrence of such severe regulatory restrictions (All-Inclusive Directions), cooperative banks must institutionalize the following controls:
- Strengthened Liquidity Management Strict adherence to Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR) norms is essential. Implementation of rigorous stress testing ensures the bank can survive sudden withdrawal shocks.
- Robust Credit Appraisal Framework Banks must move away from relationship-based lending to strict collateral-based lending. Implementing multi-tier approval processes for high-value loans helps prevent concentration risk.
- Early Warning Systems (EWS) Deploying software solutions that flag potential NPAs early (e.g., irregular payments, SMA-0/1/2 accounts) allows for remedial action before the asset turns legally non-performing.
4. Lessons Learnt
For Sectoral Peers (Co-op Banks)
Compliance is not optional. The RBI’s “zero tolerance” approach towards governance failures means that ignoring early signs of liquidity stress leads inevitably to Section 35A directions. Proactive transparency with the regulator is safer than concealment.
For Depositors
Diversification is Key: Depositors should avoid keeping funds exceeding the DICGC threshold (₹5 Lakhs) in a single cooperative entity. Awareness of a bank’s financial health (regularly checking audit reports and NPA levels) is crucial for personal risk management.