India’s banking system is designed to be strong, secure, and customer-focused. At the heart of this system is the Reserve Bank of India (RBI), the country’s central bank. One of RBI’s key roles is to monitor and regulate banks to ensure they operate fairly, responsibly, and in the best interest of depositors. When a bank fails to meet these standards, RBI doesn’t hesitate to take strict action — including cancelling its license.
Recently, RBI cancelled the license of another cooperative bank, sparking panic among its customers and raising important questions about the safety of their money. If you're wondering what this means for depositors and how to safeguard your finances, this article is for you.
Why RBI Cancels Bank Licenses
RBI doesn't cancel bank licenses without reason. Such action is typically taken when:
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A bank has weak financials and can't continue operations safely.
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There is insufficient capital to cover future losses.
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The bank fails to follow regulations laid out under the Banking Regulation Act.
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There is risk to depositors’ money due to mismanagement or fraud.
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The bank has no realistic future earning potential.
In these cases, allowing the bank to continue operating could put customer funds at risk. So, RBI steps in to protect the public.
The Latest Case: Licence Cancellation of a Gujarat-Based Cooperative Bank
RBI recently cancelled the license of Colour Merchants Co-operative Bank, based in Ahmedabad, Gujarat. The reasons stated were:
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The bank didn’t have enough capital to continue its operations.
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It was unable to pay its depositors in full.
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Its financial position made it unreliable for future operations.
After assessing the situation, RBI concluded that continuing this bank’s operations would not be in the interest of depositors. So, the license was revoked, and steps to shut down the bank were initiated.
What Happens After a Bank License is Cancelled?
Once a bank's license is cancelled, it must:
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Stop all banking operations immediately.
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No longer accept new deposits or issue loans.
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Begin the liquidation process, where its assets are sold to repay customers and creditors.
This is done in coordination with the Registrar of Co-operative Societies and a court-appointed liquidator.
The liquidation process involves:
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Assessing the bank’s total assets.
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Prioritizing repayments — depositors are given priority under law.
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Disbursing funds as per Deposit Insurance and Credit Guarantee Corporation (DICGC) rules.
What is DICGC and How Does It Help?
The Deposit Insurance and Credit Guarantee Corporation (DICGC) is a wholly owned subsidiary of RBI. It insures your bank deposits up to a maximum of ₹5 lakh per depositor per bank.
This includes:
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Savings accounts
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Fixed deposits
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Current accounts
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Recurring deposits
Key Points:
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The ₹5 lakh limit is inclusive of both principal and interest.
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This insurance is automatically applicable. You don’t need to apply separately.
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Even if the bank collapses, DICGC guarantees this amount.
How Many People Are Protected?
In the case of Colour Merchants Co-operative Bank:
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98% of the customers had deposits below ₹5 lakh. They will get their full amount back.
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2% of depositors had more than ₹5 lakh in the bank. They will get only ₹5 lakh, regardless of how much more was deposited.
This shows how effective DICGC is in protecting small depositors.
When Will Customers Get Their Money?
The process of getting your insured amount follows these steps:
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The bank submits a depositor list and account details to DICGC.
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DICGC verifies and approves the list.
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The money is transferred to each depositor’s alternate bank account, usually within 90 days.
If there are errors or missing information, customers may need to fill a claim form. It’s best to keep all account details, KYC documents, and alternate bank account details ready.
What About the Remaining Money Over ₹5 Lakh?
Unfortunately, DICGC covers only up to ₹5 lakh. For anything above this amount:
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You’ll need to wait for the liquidation process.
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The liquidator may sell off the bank’s assets and distribute the funds.
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However, this process can take several years, and there is no guarantee that the full remaining amount will be recovered.
This is why deposit insurance plays a vital role in your financial safety.
How to Check If Your Bank is Safe
To ensure your bank is operating within regulations, keep an eye on:
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RBI Announcements: Visit RBI’s official website or follow news updates.
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Annual Bank Reports: Look for signs of losses, increasing non-performing assets (NPAs), or reduced profits.
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Customer Complaints: If many people complain about poor service or delays in payments, be cautious.
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Physical Visits: Visit your bank branch occasionally to see if operations are smooth.
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DICGC Coverage: Always ask if your deposits are insured.
What Should You Do to Protect Your Money?
Here are practical steps to secure your finances:
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Split Your Money: Avoid keeping more than ₹5 lakh in one bank. Spread your funds across different insured banks.
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Choose Trusted Banks: Nationalized and reputed private banks are usually more stable.
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Keep Records: Maintain physical and digital records of your deposits, passbooks, and statements.
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Link Alternate Account: Always have a second bank account for emergency transfers.
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Follow Financial News: Stay updated on RBI actions and new regulations.
Common Questions and Answers
Q: What happens to loans taken from the bank?
A: You still need to repay the loan. Loan obligations don’t get canceled even if the bank’s license is revoked.
Q: Will my FD get the full interest?
A: Interest is calculated only until the date of license cancellation. After that, no new interest is added.
Q: Can I file a legal case to recover the full amount above ₹5 lakh?
A: Yes, but the process will go through the liquidator, and courts may be involved. It’s time-consuming.
What Can the Government Do?
RBI and the government have taken steps to improve customer protection:
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Increasing the DICGC limit from ₹1 lakh to ₹5 lakh in 2020.
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Making timely payments of insured deposits mandatory within 90 days.
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Keeping co-operative banks under stricter supervision.
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Regularly issuing alerts to customers when a bank is in trouble.
Final Thoughts
The cancellation of bank licenses is unfortunate but necessary when customer money is at risk. RBI’s job is to ensure that banks operate honestly, securely, and efficiently.
As customers, we must also take responsibility:
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Know the rules.
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Diversify your deposits.
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Stay informed.
While most customers in this case will get their money back, it’s a reminder to always be careful with where and how much you deposit in any one bank.
Stay alert. Stay protected. Your money deserves that.
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