Karnataka-based lender's banking licence stands cancelled; here's how it happened

The Reserve Bank of India (RBI) said on Thursday that the banking licence of Shimsha Sahakara Bank Niyamitha, a commercial bank located in Maddur in the Mandya district of Karnataka, stands cancelled. The lender is prohibited from conducting the banking business, according to the regulator.

According to the RBI, the licence cancellation was originally ordered on July 5, 2024, which followed the lender stopping its banking operations from the close of business on July 5, 2024.

The central bank had earlier extended certain regulatory directives on Shimsha Sahakara Bank Niyamitha following an interim order by the Karnataka High Court that year.

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Later, those directives were last extended until May 24, 2026, as per a notification in November 2025.

Last month, the Karnataka High Court dismissed a writ petition as withdrawn, which led to the revival of the RBI's July 2024 order cancelling the lender's licence. That order, said the RBI on Thursday, is now in force.

"Shimsha Sahakara Bank Niyamitha, Maddur, Mandya District, Karnataka is prohibited from conducting the business of ‘banking’ as defined in Section 5(b) read with Section 56 of the Banking Regulation Act, 1949, and other forms of business as mentioned in Section 6 of the said Act with immediate effect," noted the RBI.

What is the business of banking, as defined by the RBI?

RBI rules define "banking" as the act of accepting deposits of money from the public for lending or investment, repayable on demand or otherwise, withdrawable by cheque, draft, order or otherwise, including:

• Borrowing/lending money
• Dealing in bills of exchange/promissory notes
• Forex dealings
• Issuing guarantees/indemnities
• Acquiring/undertaking immovable property for banking premises
• Collecting bills/debts on behalf of others
• Buying/selling gold/sterling securities (RBI-approved)
• Acting as agent/referee/valuer
• Executing trusts
• Establishing subsidiaries for specified activities
• General incidental business

Here are answers to frequently asked questions (FAQs) on the subject:

What is the Banking Regulation Act, 1949?

It is a comprehensive law consolidating banking laws in the country. It seeks to regulate commercial or cooperative banks to ensure stability, depositor protection and prudent management.

It also grants the RBI teeth for the following activities:

• Licensing
• Supervision
• Branch control
• Mergers
• Liquidations

The law defines specific tasks under core banking operations as well as other forms of business.

What has the RBI announced?

The banking regulator has cancelled the banking licence of Shimsha Sahakara Bank Niyamitha, prohibiting it from carrying out banking operations.

When was the licence cancellation originally ordered?

It was originally issued in July 2024, after which the bank stopped conducting banking operations.

Why has the order come into force now?

The matter was under legal scrutiny after a writ petition was filed in the Karnataka High Court.

In mid-February, the court recently dismissed the petition as withdrawn.

This led to the revival of the RBI’s July 2024 order cancelling the company's licence.

Which activities are considered banking under RBI laws?

Banking activities can include lending and borrowing money, dealing in bills of exchange, forex transactions, issuing guarantees, collecting debts on behalf of customers, trading in approved securities, and acting as agents/trustees.