Why Has RBI Cancelled Sarvodaya Co-operative Bank’s License? Account Holders To Only Get THIS Insured Amount, Check Here

RBI LATEST NEWS: The Reserve Bank of India (RBI) has cancelled the license of Sarvodaya Co-operative Bank on Tuesday, May 12, saying it had been inadequately capitalised, had poor earnings prospects and failed to meet the requirements of the Banking Regulation Act. The RBI stated that the co-operative bank will stop banking operations from May 12, 2026 onwards. The Commissioner of Cooperation, Registrar of Cooperative Societies, Maharashtra, has also been asked to start the winding up of the bank and appoint a liquidator.

Why Did RBI Cancel Sarvodaya Co-operative Bank’s License?

RBI said the bank was short of capital and earning potential and had not met several requirements of the Banking Regulation Act. RBI also noted that continuing the bank’s operations would be detrimental to the interests of depositors and public interest. If the bank is allowed to continue its banking activity any further, it would not be able to pay off its current depositors in full, RBI said, adding that its decision would be detrimental to the public interest.

Can Sarvodaya Co-operative Bank Continue Its Operations?

The bank is barred from carrying on banking business such as accepting and repayment of deposits with immediate effect after the issue of the cancellation of the licence. The RBI stated that the claims of depositors up to ₹5 lakh would be paid by the Deposit Insurance and Credit Guarantee Corporation (DICGC) to insure their deposits. Data furnished by the bank shows that as at the date of issuance of all inclusive directions, around 98.36 per cent of the depositors were eligible to claim full amount of their deposits from DICGC.

Why was Sarvodaya Co-operative Bank’s License Not Renewed?

DICGC had already paid ₹26.72 crore towards insured deposits as of March 31, 2026.  The banking regulator has refused to renew Sarvodaya Cooperative Bank’s licence, saying the company has failed to raise its capital and has not found adequate growth potential at a Mumbai-based lender.

The Central Bank has called for the closure of the cooperative lender and appointed a liquidator for the same. The regulator pointed to a lack of capital and earning opportunities at the cooperative lender behind the move. The RBI said that the continued operations will not serve the interest of depositors, and the bank is not able to rebuild the depositors in full.

What does this mean for account holders?

With the RBI’s action, once the bank closes for business on Tuesday, customers can’t access their accounts anymore. No more deposits or withdrawals.

On the upside, the RBI says 98.36% of depositors will get back the full amount they’re owed. Here’s how it works: every bank deposit up to Rs 5 lakh is insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC), which is part of the RBI. This insurance covers both principal and interest; if the bank fails, you’re safe up to that limit.

So far, the DICGC has already paid out Rs 26.72 crore as of March 31. Eligible depositors have received their insured amounts.

What happens when RBI cancels a bank’s license?

When the RBI, which is the country’s banking regulator, revokes a commercial bank’s banking license through section 22(4) of the Banking Regulation Act, that commercial bank must cease from all its operations. Such operations include deposits, borrowing services, and other banking functions.

Apart from being the central bank for the country, the RBI also doubles up as the national banking regulator. Its key role is to protect depositors’ money and instil confidence in the entire banking industry.

RBI makes the move known through a public announcement, which states the reasons why they took such an action. Usually, such action results from the financial weakness of the commercial bank and lack of enough capital or violation of banking rules and depositors’ interests.

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