Source: ET
Context:
- The Reserve Bank of India (RBI) has cancelled the banking licence of The Shirpur Merchants’ Co-operative Bank (Maharashtra).
- Effective Date: The bank ceased all banking operations, including accepting and repaying deposits, from the close of business on April 6, 2026.
- The Reason: The RBI determined that the lender lacks adequate capital and earning prospects. Its current financial position makes it unable to pay its depositors in full.
- Next Steps: The Commissioner for Cooperation and Registrar of Cooperative Societies, Maharashtra, has been asked to wind up the bank and appoint a liquidator.
PROTECTING DEPOSITORS: THE DICGC SAFETY NET
When a bank’s licence is cancelled and liquidation begins, the Deposit Insurance and Credit Guarantee Corporation (DICGC) steps in to protect small savers.
1. The ₹5 Lakh Guarantee
- Every depositor is entitled to receive a deposit insurance claim for their deposits (both principal and interest) up to a monetary ceiling of ₹5,00,000 (Rupees Five Lakh).
- Coverage Status: According to data submitted by the bank, approximately 99.7% of the depositors are entitled to receive the full amount of their deposits from DICGC.
2. Payments Already Made
- As of January 31, 2026, the DICGC had already proactively paid out ₹48.95 crore of the total insured deposits based on the willingness forms received from depositors.
BACKGROUND CONCEPTS: COOPERATIVE BANK REGULATION
1. Why does the RBI cancel licences?
The RBI acts as a “watchdog.” If a bank’s capital falls below the required regulatory minimum (Capital to Risk-Weighted Assets Ratio – CRAR), it can no longer safely handle public money. Allowing such a bank to continue would be “prejudicial to the interests of its depositors.”
2. The Winding-Up Process
- Liquidator: An official appointed to “liquidate” or sell the bank’s assets (buildings, furniture, loan recoveries).
- Priority: The money recovered by the liquidator is used to repay the DICGC (for the claims it paid out) and then any remaining depositors or creditors.
CONCEPTUAL MCQs
Q1. What is the maximum insurance cover provided by the DICGC to a depositor in a failed bank? A) ₹1 Lakh
B) ₹2 Lakh
C) ₹5 Lakh
D) ₹10 Lakh
Q2. Who is responsible for appointing a liquidator for a cooperative bank after its licence is cancelled? A) The Prime Minister’s Office
B) The Registrar of Cooperative Societies of the respective State
C) The SEBI Chairperson
D) The Finance Minister
Q3. According to the RBI, why was the licence of Shirpur Merchants’ Co-op Bank cancelled? A) It wanted to merge with a private bank.
B) It lacked adequate capital and earning prospects.
C) It was opening too many branches in rural areas.
D) It forgot to renew its digital certificates.
Q4. What does the “99.7% entitlement” figure signify in this context? A) That 99.7% of the bank’s staff will lose their jobs.
B) That almost all depositors have balances below the ₹5 lakh insurance threshold and will get their full money back.
C) That the bank was 99.7% successful before failing.
D) That the liquidator will sell 99.7% of the bank’s furniture.
ANSWERS Q1: C (Explanation: The limit was raised from ₹1 lakh to ₹5 lakh in 2020.)
Q2: B (Explanation: While RBI cancels the licence, the actual winding up is a state-level administrative process.)
Q3: B (Explanation: Financial unviability is the primary reason for such regulatory intervention.)
Q4: B (Explanation: DICGC coverage is highly effective for small-scale cooperative bank depositors.)
EXAM RELEVANCE
| Exam | Focus Area | Relevance Level |
| RBI Grade B | Banking Regulation, DICGC, Cooperative Banks | Critical |
| Banking | Current Awareness: Bank Cancellations & DICGC Limits | High |
| UPSC CSE | GS-3 Economy (Financial Inclusion & Stability) | Moderate |
