The Reserve Bank of India has on January 22, 2009 cancelled the licence of Sadhana Co-operative Bank Ltd., Ichalkaranji, District Kolhapur, Maharashtra. The licence has been cancelled as the bank had ceased to be solvent, all efforts to revive it in close consultation with the Government of Maharashtra had failed and the depositors were being inconvenienced by continued uncertainty. The Reserve Bank requested the Registrar of Co-operative Societies, Maharashtra to issue an order for winding up the bank and appoint a liquidator.
Consequent to the cancellation of its licence, Sadhana Co-operative Bank Ltd., Ichalkaranji, Kolhapur, Maharashtra is prohibited from carrying on ‘banking business’ as defined in Section 5(b) of the Banking Regulation Act, 1949 (As applicable to Co-operative Societies) (AACS) including acceptance and repayment of deposits.
With the cancellation of its licence and commencement of liquidation proceedings, the process of paying the depositors of Sadhana Co-operative Bank Ltd., Ichalkaranji, Kolhapur, Maharashtra will be set in motion subject to the terms and conditions of the Deposit Insurance Scheme.
On liquidation, every depositor is entitled to repayment of his/her deposits up to a monetary ceiling of Rs.1,00,000/- (Rupees One lakh only) from the Deposit Insurance and Credit Guarantee Corporation (DICGC) under usual terms and conditions.
For any clarifications, depositors may approach Shri P.K.Arora, Deputy General Manager, Urban Banks Department, Mumbai Regional Office, Reserve Bank of India, Second Floor, Garment House, Mumbai 400 018. Telephone : (022) 2493 9930-49, Direct (022) 2493 5348, Fax : (022) 2493 5495, For email click here :
The bank was granted a licence by Reserve Bank on June 18, 1996 to commence banking business. The inspection findings with reference to its financial position as on March 31, 2007 revealed deterioration in the bank's financial position. The latest inspection of the bank conducted with reference to its financial position as on March 31, 2008 revealed that the bank's financial position was precarious. Accordingly the Reserve Bank of India imposed all inclusive directions under Section 35 A of the Banking Regulation Act, 1949 (As applicable to Co-operative Societies) vide Directive dated September 4, 2008. The directions, among others, prohibited acceptance of fresh deposits and further lending and restricted repayment of deposits up to a maximum of Rs.1000/- per depositor.
The bank was served a notice on September 12, 2008, to show cause as to why the licence granted to it should not be cancelled and why steps should not be taken to wind up the bank. The bank's reply to the show cause notice was examined and it was found unsatisfactory. The bank did not come out with any concrete plan for revival or any proposal for its merger. It was therefore, decided to cancel its licence.
Tuesday, February 3, 2009
Thursday, January 29, 2009
Crisis management: Pointers for RBI
by Sudip Bandyopadhyay
(CEO & Director, Reliance Money)
Financial crisis have, by and large, exhibited a repetitive pattern, demonstrating the inability, or unwillingness, of financial market participants to learn.
Charles Mackay, in his book Extraordinary Popular Delusions and the Madness of the Crowds, says that while episodes of panic and disasters have their own distinctive features, they exhibit a common feature – that they are all preceded by a period of apparent prosperity when it is possible to rapidly acquire fortunes ‘otherwise than by the road of plodding”. In their study of 18 financial crises in the US, economists Carmen Reinhart and Kenneth Rogoff of Harvard Business School found that there were ‘stunning qualitative and quantitative parallels across a number of standard financial crisis indicators’. Ahead of each big financial shock, house prices rose rapidly, as did equity prices; current account deficits ballooned; and capital inflows accelerated.
Financial crises, either global or domestic, transform ‘something close to universal trust into something akin to universal suspicion’ as Galbraith remarked in his book The Great Depression. Under these conditions, it becomes difficult for regulators and legislators to make the wisest decisions or take the best measures. Regulations originating in a crisis tend to be extreme and such measures often lead to expensive regulation. The Sarbanes Oxley Act is one such example.
The question is: if the financial crisis could not be detected despite the expensive disclosures and risk management requirements of this act and NYSE rules, are such rules serving the purpose? The recent banning of short sales in the US, Europe and Australia is another example. Banning of short sales is an extreme measure which has not worked in any market.
It does little to arrest the decline in prices; on the contrary, when the ban is removed, a flood of pent up sales push the market down further. This was tried in India too on a couple of occasions, and with little effect. We ought to refrain from taking any quick-fix regulatory measure – either as a precautionary or prophylactic step or for lifting the market sentiment.
Market sentiments cannot be talked up or down and when fear grips the market it would be futile to try and impact the prices by comforting statements for example, the famous Greenspan speak of ‘irrational exuberance’ had affected markets only for half a day.
Markets are known to respond to the casual market-reviving measures only casually, as they did to the recent SEBI Participatory Note-related policy changes. What works are measures that ensure that liquidity never dries up. That is the responsibility of the central banker.
(CEO & Director, Reliance Money)
Financial crisis have, by and large, exhibited a repetitive pattern, demonstrating the inability, or unwillingness, of financial market participants to learn.
Charles Mackay, in his book Extraordinary Popular Delusions and the Madness of the Crowds, says that while episodes of panic and disasters have their own distinctive features, they exhibit a common feature – that they are all preceded by a period of apparent prosperity when it is possible to rapidly acquire fortunes ‘otherwise than by the road of plodding”. In their study of 18 financial crises in the US, economists Carmen Reinhart and Kenneth Rogoff of Harvard Business School found that there were ‘stunning qualitative and quantitative parallels across a number of standard financial crisis indicators’. Ahead of each big financial shock, house prices rose rapidly, as did equity prices; current account deficits ballooned; and capital inflows accelerated.
Financial crises, either global or domestic, transform ‘something close to universal trust into something akin to universal suspicion’ as Galbraith remarked in his book The Great Depression. Under these conditions, it becomes difficult for regulators and legislators to make the wisest decisions or take the best measures. Regulations originating in a crisis tend to be extreme and such measures often lead to expensive regulation. The Sarbanes Oxley Act is one such example.
The question is: if the financial crisis could not be detected despite the expensive disclosures and risk management requirements of this act and NYSE rules, are such rules serving the purpose? The recent banning of short sales in the US, Europe and Australia is another example. Banning of short sales is an extreme measure which has not worked in any market.
It does little to arrest the decline in prices; on the contrary, when the ban is removed, a flood of pent up sales push the market down further. This was tried in India too on a couple of occasions, and with little effect. We ought to refrain from taking any quick-fix regulatory measure – either as a precautionary or prophylactic step or for lifting the market sentiment.
Market sentiments cannot be talked up or down and when fear grips the market it would be futile to try and impact the prices by comforting statements for example, the famous Greenspan speak of ‘irrational exuberance’ had affected markets only for half a day.
Markets are known to respond to the casual market-reviving measures only casually, as they did to the recent SEBI Participatory Note-related policy changes. What works are measures that ensure that liquidity never dries up. That is the responsibility of the central banker.
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