The RBI cancelled the licence of Shree Mahalaxmi Urban Co-operative Credit Bank, Gokak, Karnataka, effective June 18, 2026, under Section 22 read with Section 56 of the Banking Regulation Act, 1949. The bank lacked adequate capital, had poor earning prospects, and could not repay depositors in full. The Registrar of Co-operative Societies, Karnataka, has been asked to initiate winding up. Approximately 97.9% of depositors will receive full insured amounts through DICGC.

Co-operative bank licence cancellations reveal a structural vulnerability in India's two-tier banking architecture. Urban Co-operative Banks (UCBs) are regulated dually — by RBI for banking functions and by the Registrar of Co-operative Societies for administrative matters. This dual control historically created regulatory gaps, which the Banking Regulation (Amendment) Act, 2020 partially addressed by extending RBI's supervisory authority.

When RBI cancels a licence under Section 22 read with Section 56 of the BR Act, Section 22 governs the licensing conditions for commercial banking operations, while Section 56 makes those provisions applicable to co-operative banks with necessary modifications. This dual-section invocation is a technical but exam-critical distinction.

The DICGC safety net is central here. DICGC insures deposits up to ₹5 lakh per depositor per bank — a limit raised from ₹1 lakh in February 2020. The 97.9% coverage figure reflects that most depositors in small UCBs hold balances below ₹5 lakh. Importantly, since 2021, DICGC is legally required to pay insured deposits within 90 days of a bank being placed under restrictions, providing earlier relief than the liquidation endpoint.

RBI's move signals continued cleanup of weak UCBs, a priority under its Prompt Corrective Action framework and the revised UCB regulatory framework announced in 2022, which created a 4-tier structure based on deposit size to calibrate regulatory intensity.