The Reserve Bank of India (RBI) has cancelled the banking licence of the Rajasthan-based Vinayak local area bank.
The RBI has exercised its powers under sub-section (4) of Section 22 of the Banking Regulation Act, 1949, and cancelled the licence of the bank to carry on banking business in the districts of Jhunjhunu, Sikar and Churu.
"Having noted that the bank's affairs are being conducted in a manner detrimental to the interest of depositors and that the general character of the management is prejudicial to public interest, the RBI has cancelled its licence," the central bank said in a statement.
The bank is precluded from transacting accepting deposits from public and allowing withdrawals by cheque, draft, order or otherwise.
According to sources familiar with the development, the bank had extended loans to companies in Delhi, Chennai and other places outside Rajasthan, thus violating the spirit of a LAB whose area of operation is supposed to be confined to a maximum of three geographically contiguous districts.
LABs were conceived by the former union finance minister P Chidambaram in 1997 as a means of providing an organised source of finance for rural India in place of the traditional and unorganised funding sources.
As per the directions issued by the RBI on September 29, 2001, members of public who have deposits with the bank can approach the bank for repayment as necessary arrangements had been made to enable the bank to meet its existing deposit liabilities through an account opened with State Bank of India in Sikar in Rajasthan.
