The Reserve Bank of India (RBI) has cancelled the banking license of a small cooperative bank, effective March 5, 2026, citing insufficient capital reserves, failure to maintain adequate liquid assets, and inability to pay depositors in full. The decision has left thousands of account holders uncertain about the fate of their savings.

While the RBI has not publicly named the bank (pending official gazette notification), sources indicate it is a multi-state cooperative bank with branches in Maharashtra and Gujarat with approximately 45,000 depositors.

Why RBI Cancels Bank Licenses

The RBI is empowered under the Banking Regulation Act, 1949 to cancel the license of any bank that:

1. Does not have adequate capital: Banks must maintain a Capital Adequacy Ratio (CAR) as per RBI guidelines
2. Cannot repay depositors: If the bank lacks liquid assets to meet withdrawal demands
3. Conducts fraudulent operations: Misuse of depositor funds or violation of KYC/AML norms
4. Fails regulatory inspections: Repeated non-compliance with RBI’s supervisory findings

What Happens to Customer Deposits?

This is the most critical question for affected account holders. Here’s what customers need to know:

• DICGC Coverage: The Deposit Insurance and Credit Guarantee Corporation (DICGC) insures deposits up to ₹5 lakh per depositor per bank. This means all depositors with up to ₹5 lakh are fully protected.
• Timeline: Depositors will receive their insured amount within 90 days of the RBI’s liquidation order
• Claims Process: Affected customers must submit claim forms to the bank’s liquidator with account details and identity proof
• Amounts Above ₹5 Lakh: Will be recovered on a proportional basis from the bank’s assets during liquidation, which may take years

How to Protect Your Money

This incident highlights the importance of banking with scheduled commercial banks (SBI, HDFC, ICICI, PNB etc.) rather than cooperative banks, which face less stringent oversight. Diversifying savings across multiple banks ensures full DICGC protection on each account.

Conclusion

The RBI’s bank license cancellation is a rare but serious event that directly impacts depositors. With DICGC insurance covering up to ₹5 lakh, most small depositors are protected. However, this serves as a reminder to choose banks carefully and stay within insurance limits.