The Reserve Bank of India (RBI) cancelled the banking licence of Mumbai-based Sarvodaya Co-operative Bank Ltd. on 12 May 2026 due to inadequate capital, weak earning prospects, and failure to comply with several provisions of the Banking Regulation Act, 1949. Following the cancellation, the bank ceased all banking operations, including acceptance and repayment of deposits, with effect from the close of business on May 12, 2026. RBI also requested the Commissioner for Cooperation and Registrar of Cooperative Societies, Maharashtra, to initiate the winding-up process and appoint a liquidator for the bank.
Reasons Behind Cancellation of Licence
RBI stated that the co-operative bank did not have sufficient capital and viable earning potential to continue operations safely. The central bank also observed persistent non-compliance with regulatory requirements under the Banking Regulation Act. According to RBI, allowing the bank to continue functioning would adversely affect public interest and depositors’ interests.
Relief for Depositors
RBI clarified that depositors of the bank would be protected under the Deposit Insurance and Credit Guarantee Corporation (DICGC) insurance scheme.
Key Details
Deposit insurance coverage limit: ₹5 lakh per depositor
Around 98% of depositors are expected to receive the full amount of their insured deposits
As of 31 March 2026, DICGC had already paid approximately ₹26.72 crore towards insured deposits.
What is DICGC?
The Deposit Insurance and Credit Guarantee Corporation (DICGC) is a wholly owned subsidiary of RBI that provides insurance cover on bank deposits.
Important Facts
Established: 1961
Headquarters: Mumbai
Deposit insurance cover increased from ₹1 lakh to ₹5 lakh in 2020
Covers:
Savings deposits
Current deposits
Fixed deposits
Recurring deposits
The insurance amount includes both principal and interest.
About Urban Co-operative Banks (UCBs)
Urban Co-operative Banks are financial institutions registered as co-operative societies and primarily operate in urban and semi-urban areas.
Features of UCBs
Owned and managed by members
Provide banking services to local communities
Regulated by:
RBI (banking operations)
State Registrar of Co-operative Societies (management and administration)
UCBs play an important role in financial inclusion, especially for small businesses and middle-income groups.
Banking Regulation Act, 1949
The Banking Regulation Act, 1949 empowers RBI to:
Grant and cancel banking licences
Supervise banking operations
Ensure financial stability
Protect depositors’ interests
Issue directions to banks
Section 22 of the Act deals with licensing of banking companies, while Section 56 extends certain provisions to co-operative banks.
Challenges Faced by Co-operative Banks:
Urban Co-operative Banks in India often face:
Poor governance
Political interference
Weak capital base
High Non-Performing Assets (NPAs)
Limited professional management
In recent years, RBI has increased regulatory oversight after several co-operative bank crises.
Deposit Insurance
Deposit insurance helps:
Protect small depositors
Maintain confidence in the banking system
Prevent panic withdrawals during bank failures
Winding Up of a Bank
When a bank’s licence is cancelled:
A liquidator is appointed
Assets are sold
Depositors are repaid according to legal procedures
UPSC - 2027 - Prelims cum Mains - Foundation Course / Batch Starts on 14-05-2026 
