RBI Cancels Gokak Co-operative Bank License Amid Capital Woes and Depositor Risk
The Reserve Bank of India (RBI) has taken decisive action against Shree Mahalaxmi Urban Co-operative Credit Bank Ltd., located in Gokak, Karnataka. The regulator cancelled the bank's license with immediate effect as of June 18, 2026. This move follows an order issued by the RBI on June 16, 2026, under Section 22 read with Section 56 of the Banking Regulation Act, 1949 (BR Act).Consequently, Shree Mahalaxmi Urban Co-operative Credit Bank Ltd. has ceased all banking operations. The Registrar of Co-operative Societies in Karnataka has been contacted and requested to issue necessary orders for the bank's winding up and the appointment of a liquidator.
Grounds for License Cancellation
The RBI determined that several critical compliance failures led to this regulatory action. A primary concern was the bank’s lack of adequate capital and earning prospects, resulting in non-compliance with specific provisions of the BR Act. Furthermore, the regulator found that the continued operation of the bank would be detrimental to the interests of its depositors.The RBI stated that the bank's current financial position means it is unable to repay all its existing depositors in full. The decision was driven by regulatory concerns that public interest would be adversely affected if the institution were allowed to conduct banking business any further.
Immediate Banking Restrictions and Implications
Following the license cancellation, the bank is immediately prohibited from conducting any "banking" activities. These actions specifically include the acceptance of new deposits and the repayment of existing deposits as defined under the BR Act. This restriction ensures that market participants are fully aware of the status change.The decision marks a significant regulatory enforcement action against urban cooperative credit institutions in Karnataka. The move underscores the RBI's commitment to maintaining financial stability and safeguarding depositors across all banking entities.
Depositor Protection and DICGC Guarantees
In response to the bank's closure, comprehensive provisions have been put in place to protect the affected stakeholders. Every depositor is guaranteed a deposit insurance claim amount up to a monetary ceiling of ₹5,00,000/- (Rupees five lakh only) through the Deposit Insurance and Credit Guarantee Corporation (DICGC).The data provided by the bank indicates that 97.90% of depositors were entitled to receive the full amount of their deposits from DICGC as of the date the All Inclusive Directions were imposed. As a measure of support, DICGC had already paid ₹88.21 crore toward the total insured deposits as of June 09, 2026, based on submissions received from concerned depositors.
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