In view of the fact that the The Challakere Urban Co-operative Bank Ltd., Challakere (Karnataka) had ceased to be solvent, all efforts to revive it in close consultation with the Government of Karnataka had failed and the depositors of the bank were being inconvenienced by continued uncertainty, the Reserve Bank of India delivered the order, canceling its licence to the bank after the close of business on August 02, 2006. The Registrar of Co-operative Societies, Karnataka has also been requested to issue an order for winding up of the bank and appoint a Liquidator for the bank. It may be highlighted that on liquidation every depositor is entitled to repayment of his deposits up to a monetary ceiling of Rs.1,00,000/- (Rupees One lakh only) from the Deposit Insurance and Credit Guarantee Corporation (DICGC).

The bank was granted a licence by Reserve Bank on December 9, 1987 to commence banking business. The statutory inspection of the bank conducted with reference to its financial position as on September 30, 2003 conducted under Section 35A of the Banking Regulation Act 1949(As Applicable to Co-operative Societies) revealed several irregularities in the functioning of the bank. Due to these irregularities Registrar of Cooperative Societies (RCS) for Karnataka superseded the Board of Directors on October 27, 2003.

The scrutiny of the books of accounts of the bank conducted by Reserve Bank of India during August 2004 revealed deterioration in the financial position of the bank. The bank was facing liquidity problems. In order to protect the interests of the depositors, the bank was placed under directions issued under Section 35A of the B. R. Act, 1949(AACS) with effect from October 30, 2004 restricting its activities including imposing ceiling on repayment of deposits upto Rs.1000/- per depositor.

The subsequent inspection of the bank conducted by Reserve Bank of India with reference to its financial position as on March 31, 2005 revealed further deterioration in the realizable value of capital and reserves leading to erosion of deposits to the extent of 100.00% of its total deposits. The Reserve Bank issued a notice to the bank on April 13, 2006 asking it to show cause as to why the licence granted to it under Section 22 of the B. R. Act,1949(AACS) on December 9, 1987 to conduct banking business should not be cancelled. The bank's reply to the Show Cause Notice was examined and was found unacceptable.

As the realizable value of bank's paid-up capital and reserves was negative and the chances of its revival were remote in the absence of a viable action plan, the Reserve Bank of India took the extreme measure of canceling licence of the bank after examining all options for its revival, in the interest of the bank's depositors. With the cancellation of its licence and commencement of liquidation proceedings, the process of paying the depositors of The Challakere Urban Co-operative Bank Ltd., the amount insured as per the DICGC Act will be set in motion.

3. Consequent to the cancellation of its licence, the The Challakere Urban Co-operative Bank Ltd., is prohibited from carrying on 'banking business' as defined in Section 5(b) of the B. R. Act, 1949 (AACS) including acceptance and repayment of deposits.

For any clarifications, depositors may approach Shri C.R.G.Nair, Deputy General Manager, Urban Banks Department, Reserve Bank of India, Bangalore. His contact details are as below: