RBI cancelled Sarvodaya Cooperative Bank's banking licence in May 2026 due to inadequate capital, poor asset quality, and regulatory non-compliance. The bank ceased operations immediately, with deposits frozen. Depositors are eligible for insurance cover up to ₹5 lakh per account from DICGC. The cancellation follows RBI's ongoing cleanup of weak cooperative banks. Over 2,000 depositors affected, with total deposits estimated at ₹800 crore. Bank's CAR fell below minimum requirements.

RBI's licence cancellation of Sarvodaya Cooperative Bank exemplifies the central bank's regulatory tightening on cooperative banks since 2020. Unlike commercial banks under Banking Regulation Act 1949, cooperative banks operate under dual regulation - RBI for banking functions and state governments for cooperative activities, creating supervisory gaps. The cancellation triggers DICGC insurance, covering deposits up to ₹5 lakh per depositor per bank. This mechanism protects small depositors but leaves larger depositors exposed. The action reflects RBI's zero-tolerance approach toward weak banks that threaten financial stability. Cooperative banks serve rural and semi-urban areas where commercial bank penetration is limited, making their failure particularly disruptive for local communities. The cancellation process involves immediate cessation of business, appointment of liquidator, and asset recovery to pay creditors. For RBI Grade B candidates, this case illustrates practical application of banking supervision, deposit insurance mechanisms, and regulatory enforcement powers under Section 5 of Banking Regulation Act.