RBI cancels licence of Colour Merchants Co-op Bank, Ahmedabad

What the Record Shows

The Reserve Bank of India cancelled the licence of Colour Merchants Co-operative Bank Ltd., Ahmedabad by an order dated 15 April 2025. Per the Reserve Bank's press release of 16 April 2025, the bank ceased to carry on banking business from the close of business on 16 April 2025. The Reserve Bank simultaneously asked the Registrar of Co-operative Societies, Gujarat, to issue an order winding up the bank and to appoint a liquidator.

This is a prudential cancellation, not a criminal or enforcement action, and the order names no individual. The Reserve Bank held that the bank did not have adequate capital and earning prospects, and that it had failed to comply with several requirements of the Banking Regulation Act, 1949 as applicable to co-operative societies. The order states that the bank, in its present financial position, would be unable to pay its present depositors in full.

The Reserve Bank recorded two further grounds: that the continuance of the bank was prejudicial to the interest of its depositors, and that public interest would be adversely affected if it were allowed to carry on banking business. Together, per the order dated 15 April 2025, those findings met the threshold for withdrawing the licence granted to the bank to conduct banking.

How It Worked

The Reserve Bank's order rests on specific provisions of the Banking Regulation Act, 1949. Per the press release, the bank failed to comply with Section 11(1) and Section 22(3)(d) read with Section 56 of the Act, and did not meet the requirements of Sections 22(3)(a), 22(3)(b), 22(3)(c), 22(3)(d) and 22(3)(e) read with Section 56. Section 11(1) concerns the minimum paid-up capital and reserves a bank must hold; the Section 22(3) grounds relate to whether a bank is in a position to pay its depositors and whether its affairs are being conducted in a manner not detrimental to depositors.

A co-operative bank does not reach cancellation overnight. Colour Merchants Co-operative Bank had been operating under Reserve Bank restrictions for roughly 19 months before the licence was withdrawn, a period during which depositors faced caps on how much they could take out. Such directions, issued when the regulator judges a bank's financial position to be weak, are meant to preserve remaining assets while the position is assessed. When capital cannot be restored and earning prospects do not recover, cancellation follows.

The mechanism here is one of prudential supervision rather than any alleged diversion of money. The order describes a capital and earnings failure, not a scheme. What tipped the balance, per the Reserve Bank, was that the bank could no longer meet the statutory capital floor and could not be expected to trade its way back, so that allowing it to keep taking deposits would put depositors and the public at greater risk than an orderly wind-up.

Notably, the deposit-insurance machinery began working while the bank was still under directions rather than only after cancellation. Per the record, the Deposit Insurance and Credit Guarantee Corporation (DICGC) had already paid Rs 13.94 crore of insured deposits as on 31 March 2024, more than a year before the licence was cancelled. The DICGC framework allows eligible depositors of a bank under All-Inclusive Directions to receive insured amounts without waiting for the bank to be wound up.

Who Lost Money

The affected parties are the depositors of an urban co-operative bank in Ahmedabad. The Reserve Bank recorded that, on cancellation, about 98.51% of depositors were entitled to receive the full amount of their deposits from the DICGC, which insures each depositor up to Rs 5 lakh across principal and interest.

That figure carries an important qualification. It means roughly 98.51% of depositors, counted as people rather than as rupees, hold balances at or below the Rs 5 lakh ceiling and are therefore fully covered. Depositors whose balances exceed Rs 5 lakh recover the insured amount in full and then rank as creditors in the liquidation for the balance, which is paid, if at all, only from the realisation of the bank's assets over time.

By 31 March 2024 the DICGC had already disbursed Rs 13.94 crore against the bank's insured deposits. The remainder of covered claims falls due once liquidation formally begins and the liquidator verifies depositor lists. How much uninsured money, if any, is eventually recovered depends on the value realised from the bank's loan book and other assets, which is typically far below the headline deposit figure and takes years to distribute.

Where It Stands Now

As of today, the cancellation order stands and the bank is barred from conducting banking business, including accepting deposits and repaying them, from the close of business on 16 April 2025. The winding-up and appointment of a liquidator are matters for the Registrar of Co-operative Societies, Gujarat, acting on the Reserve Bank's request.

A licence cancellation of this kind can be challenged. An aggrieved co-operative bank may pursue the remedies available under the Banking Regulation Act and the relevant co-operative societies law, and separately through the courts. As of the most recent official record reviewed, there is no reported order staying or setting aside the 15 April 2025 cancellation. Should that position change, the current status would govern.

For depositors, the practical position is that insured claims up to Rs 5 lakh are handled by the DICGC, while any balance above that ceiling depends on the liquidation. Because this is a prudential action against an institution and not a criminal proceeding, no individual has been accused of any offence in connection with the cancellation.

What It Means

The case is a routine but instructive example of how deposit protection is meant to work in India. The single most useful takeaway for any depositor is the Rs 5 lakh DICGC cover, which applies per depositor per bank and includes both principal and interest. Spreading balances across banks, or keeping any one bank's balance within the insured limit, is the simplest way to ensure full protection if a small bank fails.

It is also worth knowing where warning signs appear before a cancellation. When the Reserve Bank places a co-operative bank under All-Inclusive Directions, it publishes the fact on rbi.org.in and the bank must display withdrawal limits; these directions are the clearest public signal that a bank's financial position is under strain. Depositors can verify whether a bank is licensed, and whether it is under directions, through the Reserve Bank's own listings rather than relying on branch assurances.

For those comparing where to keep savings, a tool such as an FD calculator helps weigh returns against the insured limit, and the wider enforcement archive records how similar co-operative bank cases have unfolded, including the recent cancellations of Imperial Urban Co-operative Bank, Jalandhar and National Urban Cooperative Bank, Pratapgarh.

FAQ

What exactly did the Reserve Bank order?

The Reserve Bank, by order dated 15 April 2025, cancelled the banking licence of Colour Merchants Co-operative Bank Ltd., Ahmedabad, effective the close of business on 16 April 2025. It held the bank lacked adequate capital and earning prospects and could not repay its depositors in full, and asked the Gujarat Registrar of Co-operative Societies to wind the bank up and appoint a liquidator.

Does cancellation mean depositors lose their money?

No, not for most of them. The Reserve Bank recorded that about 98.51% of depositors are entitled to receive their full deposits from the DICGC, which insures up to Rs 5 lakh per depositor. Balances above that ceiling rank as claims in the liquidation and are recovered only from the bank's assets over time.

How do depositors claim the DICGC insurance?

Eligible depositors receive insured amounts up to Rs 5 lakh through the DICGC once the liquidator submits verified depositor lists. Notably, Rs 13.94 crore had already been paid against this bank's insured deposits as on 31 March 2024, under the route that allows payment while a bank is under directions.

Can the cancellation be challenged?

A co-operative bank may pursue the appeal and review remedies available under the Banking Regulation Act, the co-operative societies law and the courts. As of the record reviewed for this report, no order staying or setting aside the cancellation has been reported.

Was anyone accused of wrongdoing?

No. This is a prudential action against the institution for failing to meet capital and depositor-protection requirements under the Banking Regulation Act, 1949. The order names no individual and alleges no offence.

Where can I read the official order?

The Reserve Bank's press release dated 16 April 2025 sets out the cancellation, the statutory grounds and the DICGC position, and is published on rbi.org.in. It is linked below.

This report is based on the Reserve Bank of India press release dated 16 April 2025 cancelling the licence of Colour Merchants Co-operative Bank Ltd., Ahmedabad and the official record reviewed on 30 July 2026.