RBI Cancels Licence of Indian Mercantile Co-operative Bank: What It Means for Depositors

In a decisive regulatory move, the Reserve Bank of India (RBI) has cancelled the banking licence of Indian Mercantile Co‑operative Bank Ltd., Lucknow with effect from February 13, 2026. The action comes after the central bank found the co-operative bank financially unsustainable and non-compliant with key regulatory requirements.

The cancellation means the bank can no longer conduct banking operations — including accepting fresh deposits or allowing withdrawals.

Why Did RBI Cancel the Licence?

According to the official press release, the RBI took this step because:

• The bank did not have adequate capital and earning prospects.
• It failed to comply with several provisions of the Banking Regulation Act, 1949.
• Its continued functioning was considered harmful to the interests of depositors and the public.

The RBI exercises strict oversight over banks to ensure financial stability. When a bank consistently fails to meet prudential norms, cancellation of licence becomes the last resort to protect depositors.

What Happens Now?

With the licence cancelled:

• The bank must stop all banking activities immediately.
• The Registrar of Cooperative Societies, Uttar Pradesh, has been requested to initiate winding-up proceedings.
• A liquidator will be appointed to manage the closure process.

This is a structured regulatory action, not a sudden shutdown. The winding-up process ensures orderly settlement of liabilities.

Relief for Depositors: Up to ₹5 Lakh Insurance Cover

There is significant relief for customers.

Under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme, each depositor is entitled to insurance coverage of up to ₹5 lakh per bank. The RBI has stated that around 98%+ of depositors are expected to receive their full deposit amount within the insured limit.

DICGC insurance applies automatically — depositors do not need to purchase any policy separately. The claims process will be handled through the appointed liquidator.

What This Means for the Banking Sector

The RBI’s action reinforces a key message: financial discipline is non-negotiable. Co-operative banks play an important role in local economies, but they must adhere to regulatory standards like any scheduled commercial bank.

Over the past few years, the central bank has tightened supervision of urban co-operative banks to prevent financial mismanagement and protect public money. This move reflects that ongoing effort.

Should Customers of Other Banks Be Worried?

Not necessarily.

RBI actions like this are targeted at specific institutions that fail regulatory checks. India’s banking system remains well-capitalised and regulated. Moreover, the ₹5 lakh deposit insurance cover offers a strong safety net for small and medium depositors.

If you hold deposits in any bank, it is always wise to:

• Ensure your total deposits in a single bank stay within insured limits if risk-averse.
• Keep track of official RBI communications.
• Avoid panic based on rumours — rely only on verified sources.

The cancellation of Indian Mercantile Co-operative Bank’s licence is a protective step aimed at safeguarding depositors. While the move may cause short-term concern among customers, the deposit insurance mechanism ensures that the majority of account holders will recover their money.

In the bigger picture, such actions strengthen confidence in India’s financial system by ensuring that only financially sound institutions are allowed to operate.

Stay informed. Stay secure.