1. Sarvodaya Co-operative Bank Ltd., Mumbai
Key Regulatory Details
| Original Directive Date: | April 15, 2024 |
| Current Extension Period: | January 16, 2026 – April 15, 2026 |
| Operational Restrictions: | Cap on withdrawals (initially ₹15,000); Ban on new loans/investments without prior approval. |
| Regulatory Trigger: | Deteriorating financial position and liquidity constraints. |
Root Cause Analysis (RCA)
The continued imposition of Section 35A directions indicates that the bank has not yet achieved the solvency or liquidity benchmarks required to exit the Supervisory Action Framework (SAF). Primary root causes typically include:
- High Non-Performing Assets (NPAs): Legacy bad loans likely eroding capital adequacy, restricting the bank’s ability to honor depositor demands fully.
- Compliance Failures: Historical data points to penalties (e.g., September 2021) regarding KYC norms, suggesting systemic gaps in customer due diligence and internal audits.
- Asset-Liability Mismatch: Inability to recover long-term loans quickly enough to meet short-term withdrawal pressures.
Preventive Controls Implemented
Lessons Learnt
For the sector, this case underscores the critical need for early recognition of stress signals in loan portfolios. Reliance on high-interest deposits to fund risky lending creates a fragile balance sheet that collapses under withdrawal pressure. Robust KYC and AML frameworks are not just compliance checklists but foundational risk management tools.
RBI Press Release
2. National Urban Co-operative Bank Ltd., Pratapgarh, U.P.
Key Regulatory Details
| Original Directive Date: | April 15, 2024 |
| Current Extension Period: | January 16, 2026 – April 15, 2026 |
| Operational Restrictions: | Cap on withdrawals (initially ₹10,000); Restriction on granting loans and incurring liabilities. |
| Previous Penalty Record: | ₹10 Lakh (May 2023) for contravention of Section 36(1)(a). |
Root Cause Analysis (RCA)
The extension of restrictions suggests deep-rooted structural issues rather than temporary liquidity crunches. Key factors contributing to this status include:
- Governance Deficits: Previous penalties related to Section 36(1)(a) often imply failure to adhere to specific RBI cautions or lack of board oversight in correcting flagged irregularities.
- Capital Erosion: A significant decline in the Capital to Risk (Weighted) Assets Ratio (CRAR) below regulatory minimums.
- Credit Risk Management: Inadequate appraisal mechanisms leading to high concentration risk and subsequent defaults.
Preventive Controls Implemented
Lessons Learnt
Regulatory warnings must be treated as actionable mandates, not advisories. The penalty history of the bank (May 2023) was a precursor to the current restrictions. Boards of Co-operative banks must prioritize professional management and strict adherence to exposure norms to avoid falling into the “weak bank” category which severely impacts depositor confidence.