Date: December 31, 2025
Subject: Extension of Directions under Section 35A of the Banking Regulation Act, 1949
1. The Bhavani Sahakari Bank Ltd., Mumbai
1.1 Key Details of Action
The Reserve Bank of India (RBI) has extended the operational directions previously imposed on The Bhavani Sahakari Bank Ltd. This action effectively freezes standard banking operations to prevent further financial erosion.
| Directive Reference | CO.DOS.SED.No.S2770/12-22-023/2025-2026 |
| Original Date | July 03, 2025 |
| Extension Period | 3 Months (Jan 04, 2026 – Apr 04, 2026) |
| Status | Under Directions (All withdrawals prohibited/strictly restricted) |
1.2 Root Cause Analysis (RCA)
- Severe Liquidity & Solvency Crisis: The prohibition on withdrawals indicates a critical failure in the bank’s liquidity coverage ratio (LCR). The bank likely lacks sufficient liquid assets to meet immediate depositor demands.
- Asset Quality Deterioration: The primary trigger for such stringent Section 35A directions is typically a high level of Non-Performing Assets (NPAs). Loans issued by the bank have ceased generating income, eroding the capital base.
- Governance Deficit: The extension implies that the bank’s management has failed to demonstrate a viable revival plan or improve the financial position to RBI’s satisfaction during the initial 6-month period.
1.3 Preventive & Corrective Controls
To mitigate risks to depositors and the Deposit Insurance and Credit Guarantee Corporation (DICGC), the following controls are active:
- Credit Freeze: Absolute prohibition on granting or renewing any loans and advances to prevent further capital outflow.
- Liability Capping: Restriction on incurring any new liabilities, including borrowing funds or accepting fresh deposits.
- Operational Ring-fencing: Expenses are restricted strictly to essential operational costs (salaries, rent, electricity) to preserve remaining asset value.
1.4 Lessons Learnt
For Cooperative Sector: The aggressive extension highlights that partial corrective action is insufficient. Banks must maintain a robust Capital to Risk (Weighted) Assets Ratio (CRAR). Reliance on high-yield, high-risk lending without adequate collateral recovery mechanisms leads to inevitable regulatory shutdown.
RBI Press Release
2. Innovative Co-operative Urban Bank Limited, Delhi
2.1 Key Details of Action
RBI has extended directions for Innovative Co-operative Urban Bank, maintaining caps on withdrawal limits due to continued liquidity stress.
| Directive Reference | DEL.DOS.EXG_SSM.No.S143/12-10-005/2025-2026 |
| Original Date | July 03, 2025 |
| Extension Period | 3 Months (Jan 04, 2026 – Apr 04, 2026) |
| Status | Under Directions (Withdrawals capped, likely at ₹35,000 based on initial order) |
2.2 Root Cause Analysis (RCA)
- Supervisory Compliance Failures: The bank failed to address specific supervisory concerns raised by RBI in previous inspections. This “lack of concrete effort” suggests a management unwillingness or inability to rectify audit objections.
- Inadequate Liquidity Management: While not as critical as Bhavani Sahakari (since some withdrawals are permitted), the bank’s Asset-Liability Management (ALM) is mismatched, preventing it from honoring full depositor claims.
- Erosion of Net Worth: Continued losses or high provisioning requirements have likely eroded the bank’s net worth, necessitating RBI intervention to protect public interest.
2.3 Preventive & Corrective Controls
The directive enforces strict conservation of capital:
- Withdrawal Caps: Limiting withdrawals (e.g., to ₹35,000) prevents a “run on the bank” while allowing small depositors some access to funds.
- Investment Restrictions: The bank is barred from making new investments or taking on fresh exposures that could turn into bad loans.
- Set-off Mechanisms: The bank is likely permitted to set off loans against deposits, which helps reduce the balance sheet size and recover loans without cash outflow.
2.4 Lessons Learnt
For Cooperative Sector: Regulatory compliance is not optional. The “Extension of Period” serves as a warning that RBI will not lift restrictions until specific financial benchmarks (Capital, Asset Quality, Liquidity) are visibly met. Merely waiting out the 6-month period without aggressive restructuring leads to indefinite extensions and potential license cancellation.