Tag: liquidation

No objection certificate from IT dept not required for voluntary liquidation: IBBI

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Insolvency regulator IBBI has clarified that an Insolvency Professional (IP) handling voluntary liquidation process will not be required to seek any No Objection Certificate (NOC) or No Due Certificate from the Income Tax department for compliance with any such process.

Th position was laid down in a circular by the Insolvency and Bankruptcy Board of India (IBBI) which held that the process of applying such NOC/NDC from the IT Department is time-consuming and defeats the objective of time-bound completion of process under the Insolvency and Bankruptcy Code (IBC), the IBBI said.

Currently, the voluntary liquidation regulations mandates the liquidator to make the public announcement within five days office appointment, calling for submission of claims by stakeholders within 30 days from the liquidation commencement date. The regulations also obligate all the financial creditors, operational creditors including government and other stakeholders to submit their claims within the specified period. If the claims are not submitted in time, the corporate person may get dissolved without dealing with such claims and such claims may consequently get extinguished.

It has been noticed that even after providing an opportunity for filing of claims, the liquidators seek NOC/NDC from the income tax department despite the fact that the code or the regulations do not envisage seeking such NOC/NDCs.

Experts’ take

Yogendra Aldak, Partner, Lakshimkumaran and Sridharan Attorneys, said “It brings necessary assurance to the stakeholders and makes sure that the stakeholders are not required to comply with a procedure not contemplated under the Code.”

Veena Sivaramakrishnan, Partner, Shardul Amarchand Mangaldas and Co, said “ Negating the practice of seeking a NOC/NDC from the IT department would operationally ease the process of voluntary liquidation. The liquidators can strike off this requirement from their checklist of obligations.”

Maneet Pal Singh, Partner, I.P. Pasricha & Co, said that in recent times we have seen that the objective of time-bound completion of liquidation process gets defeated primary due to the process of obtaining NOC from the Income Tax Department by the Insolvency Professional since that consumes substantial amount of time against the express provisions of the Insolvency and Bankruptcy Code, 2016.

“In order to tackle the same, the IBBI clarified that an Insolvency Professional handling voluntary liquidation process is not required to seek any NOC from the Income Tax Department and with this we believe that the process will be handled smoothly in a time bound manner”, Singh said.

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RBI panel spells out norms to streamline functioning of ARCs

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The performance of asset reconstruction companies (ARCs) in management of stressed assets of banks/financial institutions (FIs) since inception in 2003 is still uneven on several parameters, according to a Reserve Bank of India’s Committee to Review the Working of Asset Reconstruction Companies.

Overall recovery made by the ARC sector during FY04-FY13 was 68.6 per cent when measured in terms of redemption of Security Receipts (SRs), which are issued by ARCs as part of securitisation of assets acquired, as a percentage of total SRs issued, the report said.

However, the same comes down to 14.29 per cent when the redemption is measured in terms of the book value of the assets acquired.

RBI panel favours sale of stressed assets by lenders at early stage

“This implies that banks and other investors could recover only about 14 per cent of the amount owed by their borrowers,” the committee headed by Sudarshan Sen, former Executive Director, RBI, said.

The total SRs issued reflects the cost of acquisition for the ARCs vis-à-vis the book value of such financial assets. Redemption of SRs is a proxy for the amount recovered from these accounts.

ARCs are required to resolve the assets within a maximum of eight years of acquisition of financial assets and redeem the SRs representing the assets. Therefore, the period after FY13 has SRs for which resolution is still underway.

Winds of change in the stressed assets market

Business revival

The committee observed that ARCs’ performance in ensuring revival of businesses has also been poor. The data indicate that approximately 80 per cent of the recovery for the sector, so far, has come through deployment of methods of reconstruction that do not necessarily lead to revival of business.

“ARCs have rarely used methods such as change in or takeover of the management of the business of the borrower or conversion of debt into equity in a borrower’s company,” the panel said.

Rescheduling of payment of debts was also involved only in 19.9 per cent of the recovery made by ARCs.

The committee underscored “The overall performance of ARC Sector has left much to be desired. However, it would be incorrect to assume that the problems of ARC sector are entirely of its own making. In fact, the ageing of NPAs before their sale may be contributing to poor recovery. This gets further aggravated by lack of debt aggregation.”

Revival of stressed business typically requires additional funding which is difficult to come by for old NPAs.

“Inadequate capital at ARC level and the regulatory prescription limiting the extent of funds that could be raised, from external investors through securitisation, seems to have made ARCs’ attempt at revival of businesses even more difficult. ARCs’ lack of skill sets in turning around borrowers cannot be ignored,” the committee said.

The panel emphasised that despite the reshaping of the ecosystem available for lenders for handling of stressed assets and the ARC sector’s sub-optimal performance and its challenges, the ARC model remains relevant as a private sector led permanent institutional framework for out-of-court resolution of stressed assets of the financial sector.

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IBC needs a stronger push: Crisil

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The Insolvency and Bankruptcy Code (IBC) needs a stronger push after recovery of about ₹2.5 lakh crore over five years since it took effect, according to Crisil Ratings.

From here, reforms must stress quicker resolution and maximise recovery, the credit rating agency said in a study.

Per the agency: “A closer look at the data shows, however, the recovery rate and resolution timelines have a lot more room for improvement.

“This makes a continuous strengthening of the Code and stabilisation of the overall ecosystem imperative.”

Lesser traction

As of June 30, 2021, IBC had enabled recovery of about ₹2.5 lakh crore, against admitted financial claims of about ₹7 lakh crore, translating to a recovery rate of 36 per cent for the 396 cases resolved out of the total 4,541 admitted.

Of the remaining cases, 1,349 were under liquidation; 1,114 were closed under appeal/ review/ settled or withdrawn, and 1,682 were outstanding.

The agency emphasised that the recovery marks a significant shift in the insolvency resolution process and credit culture in India.

Gurpreet Chhatwal, Managing Director, Crisil Ratings, said: “The recent resolution of a large financial services firm with a recovery of about ₹37,000 crore against admitted financial claim of about ₹87,000 crore, translating to a recovery rate of about 43 per cent, underscores the efficacy of IBC. The resolution value was about 1.4 times the liquidation value.”

The agency underscored that while the IBC has tilted the power equation in favour of creditors from debtors and helped strengthen India’s insolvency resolution ecosystem, its performance against its twin objectives – maximisation of recovery and timebound resolution – has been a mixed bag.

“One, only a few large cases have seen higher recovery. Excluding the top 15 cases (by resolution value) from the 396 resolved cases, the recovery rate halves to 18 per cent.

“Two, average resolution time for the aforementioned resolved cases is 419 days compared with the stipulated maximum of 330 days. About 75 per cen of outstanding cases have already been pending for more than 270 days,” the study said.

Liquidation: a challenge

Nitesh Jain, Director, Crisil Ratings, noted that besides low recovery rate and longer timeframe, a key challenge is the high number of cases going to liquidation.

“As of June 30, 2021, nearly one-third of the 4,541 admitted cases had gone into liquidation, with a recovery rate estimated at merely 5 per cent.

“That said, around three-fourths of these cases were either sick or defunct. With closure of these vintage cases, recovery rate as well as timelines are expected to improve,”he said.

Notwithstanding these challenges, the IBC has played a key role in resolution of stressed assets so far, according to the study.

“Its effectiveness will continue to be tested given the elevated level of stressed assets in the Indian financial system,” it added.

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Several NPAs transferred to bad bank may head to liquidation, cost govt a bomb, BFSI News, ET BFSI

Banking & Finance

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The government has announced the setting up of National Asset Reconstruction Company Ltd with much fanfare and committed over Rs 30,000 crore guarantee for bad assets acquired by it, but it may be used up soon, going by the initial assets going by the list of assets proposed to be transferred to the bad bank.

Banks have identified Rs 82,496 crores worth of bad loans that could be transferred to the NARCL, which includes the following companies.

COMPANIES TOTAL BAD LOANS
Videocon Rs 22,532 crore
Reliance Naval & Engineering Rs 8,934 crore
Amtex Auto Rs 9,014 crore
Jaypee Infratech Rs 7, 950 crore
Castex Technologies Rs 6,337 crore
GTL Ltd Rs 4,866 crore
Visa Steel Rs 3,394 crore
Wind World India Ltd Rs 3,161 crore
Lavasa Corporation Rs 1,424 crore
Consolidated Construction Consortium Ltd Rs 1,353 crore

Also read: NARCL will empower lenders, but recovery from 26 accounts is not easy, industry says
Several assets such as Videocon have seen realisable value close to liquidation value in National Company Law Tribunal proceedings. Many big-ticket resolutions at Insolvency and Bankruptcy Code have seen haircuts over 90%. With most of the NPAs proposed to be transferred to the bad bank being old legacy ones, there has been an erosion in value, making them more likely to head to liquidation.

Lavasa Corporation has got bids worth Rs 700 crore for loan claims of over Rs 8,000 crore at NCLT.

Several NPAs transferred to bad bank may head to liquidation, cost govt a bomb

Close to liquidation

Though banks have made 100% provision for these assets, even Rajkiran Rai, chairman of Indian Banks Association, and MD & CEO of Union Bank of India does not expect more than 20-25 per cent recovery from these legacy accounts, he told a television channel.

The State Bank of India has identified NPAs with Rs 17,000-18,000 crore outstanding to be transferred to the NARCL, while Punjab National Bank has identified Rs 8,000 crore worth of NPAs, Union Bank of India Rs 7,800 crore of NPAs to be transferred to the National ARC. The Bank of India has identified about Rs 5,500 crores of assets for transfer while Indian Bank about Rs 1,900 crore.

“I am not hopeful. Because these are bad assets. Finally, all these will go under liquidation,” Siby Antony, chairman of the ARC Association of India.

The bad bank

Finance Minister Nirmala Sitharaman announced a Rs 30,600 crore government guarantee for the National Asset Reconstruction Company Limited (NARCL) for acquiring stressed loan assets, paving the way for operationalisation of the bad bank.

Also read: Finance Minister Sitharaman announces bad bank, Cabinet approves backing of up to Rs 30,600 crore

The finance minister in Budget 2021-22 announced the setting up of a bad bank as part of the resolution of bad loans worth about Rs 2 lakh crore.

The bad bank or NARCL will pay up to 15 per cent of the agreed value for the loans in cash and the remaining 85 per cent would be government-guaranteed security receipts (SRs). The government guarantee would be invoked if there is a loss against the threshold value.

Also read: What are NARCL and IDRCL? How do they work and what is the plan?

This sovereign guarantee would be for a period of five years and NARCL would have to pay a fee for this.

“The SRs are getting the backstop through government funding only in as much as to pay the gap between the realised value (resolution/liquidation) and the face value of SRs and this will hold good for five years,” Sitharaman said.

The fee for the guarantee would be initially 0.25 per cent, which would progressively increase to 0.5 per cent in case of delay in resolution of bad loans.

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47% closed cases under IBC end in liquidation, many due to value erosion, BFSI News, ET BFSI

Personal Finance

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Nearly 47 per cent or 1,349 cases closed under the insolvency law ended up in liquidation till the end of June this year but economic value in majority of the cases had eroded even before commencement of the corporate insolvency resolution process, according to IBBI.

A total of 4,541 CIRPs (Corporate Insolvency Resolution Process) were initiated till end of June and out of them, 2,859 were closed. Out of them, 1,349 CIRPs ended in liquidation while 396 ended in approval of resolution plans, as per the latest quarterly newsletter of the Insolvency and Bankruptcy Board of India (IBBI).

Liquidation

“About 47 per cent of the CIRPs, which were closed, yielded orders for liquidation, as compared to 14 per cent ending up with a resolution plan. “However, 75 per cent of the CIRPs ending in liquidation (1,011 out of 1,349) were earlier with Board for Industrial and Financial Reconstruction (BIFR) and / or defunct. The economic value in most of these CDs (Corporate Debtors) had almost completely eroded even before they were admitted into CIRP.

“These CDs had assets, on average, valued at around 7 per cent of the outstanding debt amount,” the newsletter said. In recent times, there have been concerns raised in certain quarters about the number of companies going into liquidation and steep haircuts taken by creditors under the Insolvency and Bankruptcy Code (IBC), which has been in force for nearly five years. IBBI is a key institution in implementing the Code.

Realisation by creditors

“Till June 30, 2021, realisation by FCs (Financial Creditors) under resolution plans in comparison to liquidation value is 167.95 per cent, while the realisation by them in comparison to their claims is 36 per cent. It is important to note that out of the 396 CDs rescued through resolution plans, 127 were in either BIFR or defunct,” the newsletter added.
Around 51 per cent of the CIRPs were triggered by Operational Creditors (OCs) while nearly 43 per cent were initiated by FCs.

“However, about 80 per cent of CIRPs having an underlying default of less than Rs 1 crore, were initiated on applications by OCs, while about 80 per cent of CIRPs, having an underlying default of more than Rs 10 crore, were initiated on applications by FCs,” it noted. According to the newsletter, the share of CIRPs initiated by CDs is declining over time and they usually initiated the process with very high underlying defaults

Also read the latest developments in IBC



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Jayant Sinha, BFSI News, ET BFSI

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As the Indian Bankruptcy Code (IBC), one of the crucial reforms that gives India Inc the ‘right to exit’ and start afresh, completed five years, ETCFO spoke with Jayant Sinha, former union minister and Chairman of the parliamentary standing committee on finance, to know if liquidation is a scam under IBC? And more.

“Liquidation should not be a benchmark. And that is why we have to think carefully about what should be the benchmarks and a resolution process particularly for secured financial creditors,” said Jayant Sinha.

Almost half of the closed cases by lenders under IBC in FY21 ended in liquidation, as per the Insolvency and Bankruptcy Board of India (IBBI), while only 13 per cent were resolved. In most of the cases under IBC, by the time they are resolved, their asset value depreciates leading to 90% haircuts, according to IBBI

Specifically from the secured creditors perspective, when they lend against collateral they expect 100 per cent value back instead of “salvage or the liquidation value”.

“If that was to be the case, the kind of loans a company would be able to get would be very modest, because everybody’s just lending against liquidation value. We can’t have that,” Sinha said, underscoring the importance of having benchmarks.

Liquidation can’t be a benchmark under Insolvency and Bankruptcy Code: Jayant SinhaThese benchmarks are for secured financial creditors as there should be a very high level of confidence that they’re going to get the vast part of their loan back, he said.

But the question is how to decide the benchmark?

Sinha points to global benchmarks, the major economies that we compete with like Germany, Japan, China, the US, the UK. What secured financial creditors typically get through the resolution process should be the benchmark, he said.

Benchmark the quantum of haircut

In one of the recommendations, the parliamentary standing committee in its report titled, ‘Implementation of Insolvency and Bankruptcy Code: Pitfalls and Solutions’ was to benchmark the quantum of haircuts to avoid a 90 per cent haircut situation.

As per IBBI, in the resolved cases, the haircut, or the loss to banks on their claims, rose to 60 per cent in FY 2021, from 55 per cent average in the previous years. While in the March 2021 quarter alone, haircuts rose to a whopping 74 per cent of the claims made by the lenders against the defaulters.

While it is a matter of concern, how will benchmarking haircuts work?

Benchmarking haircut is not a prescription. It’s not a number that you have to meet. But it is something that should guide the committee of creditors in terms of how and how quickly they should go through the resolution process..

He believes that the system needs to gear up to deliver better outcomes. He feels there are many reasons why 40% recovery is happening. He ascribed these low recoveries to companies close to liquidation coming to IBC, processes that dragged on for a long time eventually eroding the value of the assets, apart from other reasons.

“Going forward, 40% cannot be the benchmark. It is not good enough. Whereas 5% is not good enough either. We need to do better for secured financial creditors. And the changes that we are suggesting are in support of all of that,” he said.

Role of NCLT

As far as delays in the process are concerned, one aspect is counter litigation by promoters. This costs money and time to the whole system. How should IBC deal with such issues, especially when NCLT is facing the challenge of capacity?

Sinha suggested three steps to reduce litigation.

Firstly, fill the vacancies at NCLT as quickly as possible because then there is more time to adjudicate a case well and come up with a good resolution.

If judges don’t have enough time and rush through cases, they won’t give good judgments, and then things will end up in litigation. Therefore, adding capacity as soon as possible is one way in which we can deal with these endless litigation type issues.

Liquidation can’t be a benchmark under Insolvency and Bankruptcy Code: Jayant SinhaSecondly, improve the quality of NCLT members. The parliamentary committee has recommended that the NCLT should at least have high court judges so that we can benefit from their experience and their wisdom. That’s another way to prevent litigation.

The third way of preventing litigation is to ensure when people submit the resolution plan as per the deadline, they do not have an opportunity to come in with another resolution plan after that. Because not doing so, will again rest in litigation, and a lot of contentions back and forth.

“So these are three very concrete steps that we have suggested to reduce litigation as it is one of the reasons a lot of these timelines are being extended,” he said.

ALSO READ: RBI Governor and Jayant Sinha to discuss IBC



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IL&FS recoveries may top 61%, lift sagging IBC average in 2021, BFSI News, ET BFSI

Banking & Finance

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Amid the near liquidation value recovery of Videocon and Siva Industries assets, IL&FS resolution may bring some cheer for the lenders.

At the group level, it is likely to recover 61% against the average 39% for IBC overall. The average IBC recoveries for the last fiscal had dropped to a quarter.

IL&FS is likely to recover Rs 61,000 crore assets from the group debt of Rs 99,000 crore as of October 2018, an increase of 5,000 crore over the earlier estimate.

“Between now and September 2021, we see this (Rs 43,000 crore of addressed debt) number going up in excess of Rs 50,000 crore. Thereafter, we are increasing our overall estimate of what we think we can resolve to Rs 61,000 crore, or close to 62 per cent, of the total debt,” Kotak said. The upgrade in potentially addressable debt by Rs 5,000 crore (to Rs 61,000 crore) has been largely on account of improved valuations, better operating performance and enhanced recoveries from non-group exposures, the Group had said in September. This includes the debt addressed through resolution, restructuring and liquidation across 347 IL&FS companies.

According to the quarterly newsletter of the Insolvency and Bankruptcy Board of India for March 2021, the recovery through resolution amounted to about 39% and through liquidation around 4%. According to bankers, recovery in the IBC process has had extreme outcomes.

The IL&FS playbook

As of end-March 2021, of the 347 entities, 186 have been resolved with Rs 43,000 crore of debt addressed.

The 347 companies in the group have been reduced to 167 and are expected to drop further to below 100 by the end of the year. This was done by shutting down or selling off a large number of foreign and local subsidiaries.

In the case of road projects, where conventional investors were spoilt for choice given the road projects on

sale, the board decided to go for the alternative option of setting up an infrastructure investment trust (InvIT).

While the new board has addressed a major chunk of the debt, the challenge is resolving IL&FS Financial Services and the remaining cases of dozens of companies where the amounts involved are relatively small. In the case of I-FIN, the board is understood to have dropped the plan to sell Rs 5,000 crore worth of loans after bids came in the range of 5%.



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With just 24% recovery rate, IBC lags other mechanisms, BFSI News, ET BFSI

Banking & Finance

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The Videocon resolution, which yielded less than 10% for lenders, has brought back recovery woes in the Insolvency and Bankruptcy Code mechanism in the spotlight.

Bankers have lost over Rs 40,000 crore in the Videocon account, as Anil Agarwal’s Twin Star snapped the company for less than Rs 3,000 crore.

While RBI has pointed to a recovery rate of 45% in IBC so far, barring the recovery rates in the top nine accounts, recoveries in other accounts average 24%. The top nine accounts were from the steel sector which led to good recoveries, while accounts in the power and infrastructure sectors struggle for buyers.

Recoveries from earlier resolution mechanisms resulted in a loss of nearly 70%.

Fiscal 2021 drop

The realisation for financial creditors from IBC declined significantly in FY2021 with a total resolution amount of around Rs 26,000 crore, almost a quarter of the realisations in fiscal 2020.

The pandemic has increased operational challenges for the various parties involved in a CIRP, which resulted in limited cases yielding a resolution plan. The suspension of new proceedings under the IBC for the entire FY21 resulted in a sharp slowdown in the resolution process.

Out of the total 4,300 cases that have been admitted to bankruptcy courts since FY17, only 8% has been resolved and nearly 40% of the cases are still pending. About 30% of the cases have seen liquidation.

From its commencement in December 2016, 4,376 CIRPs have been admitted, of which 2,653 were closed till March 2021,

About 40% of the cases admitted by the NCLT were closed on appeal or settled or withdrawn under Section 12A which highlights that at least some promoters have been more willing to pay their dues to keep the IBC proceedings at bay. The extent of cases being referred to liquidation remains high at about 40% and only a quarter of such cases have seen the liquidation process come to a conclusion. The average realisation through liquidation has been a mere 3% of the claim amount.

Fiscal 2022 hopes

Although rating agency ICRA estimates that financial creditors could realise about Rs 55,000 crore to Rs 60,000 crore in FY2022 through successful resolution plans from the IBC. The higher realisation by the financial creditors would depend on the successful resolution of 8-9 big-ticket accounts, as more than 20% of ICRA’s estimated realisation for the year could be from these alone.



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Haircut under IBC rises to 60% in fiscal 2021, half the closes cases liquidated, BFSI News, ET BFSI

Banking & Finance

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More than half of the total 4,376 cases under the Insolvency and Bankruptcy Code have been closed with the rest undergoing resolution.

Almost half of the 2,653 cases closed by lenders under IBC in fiscal 2021 have ended in liquidation while only 13 per cent were resolved, according to the quarterly bulletin of the Insolvency and Bankruptcy Board of India.

About 23 per cent of the closed cases are either under review or under appeal.

In 16 per cent of cases, the companies were handed back to the promoters after they cleared part of their dues under Section 12A of the insolvency act.

About 43 per cent of cases admitted so far are filed by the financial creditors while the rest 51 per cent of the admitted cases were initiated by operational creditors.

Haircut rises

In the resolved cases, the haircut, or the loss to banks on their claims, rose to 60 per cent in fiscal 2021, from 55 per cent average in the previous years.

In the March 2021 quarter alone, haircut rose to a whopping 74 per cent of the claims made by the lenders against the defaulters.

About 79 per cent of the ongoing cases till March this year have already passed 270 days since admission. Experts say delay causes erosion in the value of assets and increases chances for liquidation.

The IBC saw an addition of 499 new cases in the last financial year, where the process was suspended due to the Covid pandemic.

Liquidation

About 80% of bankruptcy proceedings involving a default of less than Rs 1 crore were initiated by operational creditors, while 80% of the cases with defaults of over Rs 10 crore were initiated on applications by financial creditors.

Around three-fourths of all bankruptcy proceedings started by operational creditors resulted in the liquidation of the corporate debtor while in case of proceedings initiated by financial creditors that have been concluded, nearly half of the businesses have faced liquidation.

About 74.37% of the corporate insolvency resolution process ending in liquidation (946 out of 1272 for which data are available) were earlier with BIFR and / or defunct.

During the quarter January-March 2021, 149 corporate insolvency resolution process (CIRPs) ended in orders for liquidation, taking the total CIRPs ending in liquidation to 1277, excluding 10 cases where liquidation orders have been set aside by NCLT, NCLAT or courts.

Of these, a final report has been submitted in 240 cases. There are 1,037 ongoing liquidation processes.

During January-March, 2021, 34 more liquidation processes were closed, taking the total number of closures by dissolution, sold as a going concern or compromise or arrangement to 138.

Growing stress

The corporate sector has pitched for a fresh suspension, arguing that there will be additional stress in the wake of the lockdown announced across most states to check the surge in cases, which are still rising by over three lakhs daily.

Industry body Assocham has urged the government to reimpose a moratorium on taking debt-ridden firms to the NCLT under the IBC till December this year following the severe second wave of coronavirus. In a representation to the Finance Ministry, the chamber said that given the increasing pressure on businesses, it would be imperative to extend the NCLT (National Company Law Tribunal) moratorium to ensure that the pandemic “does not wreak havoc” on the economy.



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RBI cancels licence of Pune-based Shivajirao Bhosale Sahakari Bank

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The Reserve Bank of India (RBI) has cancelled the licence of Pune-based Shivajirao Bhosale Sahakari Bank. The RBI said the bank ceases to carry on banking business, with effect from the close of business on May 31.

With the cancellation of licence and commencement of liquidation proceedings, the process of paying the depositors of the bank as per the Deposit Insurance and Credit Guarantee Corporation (DICGC). Act, 1961, will be set in motion, the central bank said in a statement.

“As per the data submitted by the bank, more than 98 per cent of the depositors will receive full amounts of their deposits from DICGC.

“On liquidation, every depositor would be entitled to receive deposit insurance claim amount of his/her deposits up to a monetary ceiling of ₹5 lakh from the DICGC subject to the provisions of the DICGC Act, 1961,” RBI said.

Liquidator for the bank

The Registrar of Cooperative Societies, Maharashtra, has been requested to issue an order for winding up the bank and appoint a liquidator for the bank, it added.

“The bank does not have adequate capital and earning prospects. As such, it does not comply with the provisions…of the Banking Regulation Act, 1949.

“…The continuance of the bank is prejudicial to the interests of its depositors,” the statement said.

The RBI observed that the bank with its present financial position would be unable to pay its present depositors in full.

According to the central bank, public interest would be adversely affected if the bank is allowed to carry on its banking business any further.

The bank was placed under RBI Directions from the close of business on May 4, 2019.

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