* Bank has substantial retail operation
* Central bank says failed to stick to money-laundering and false accounting laws
* Administration will cost deposit insurance fund $917 million
* Cousin of President Putin was on board
By Jason Bush
MOSCOW, Nov 20 (Reuters) - Russia's central bank has withdrawn Moscow-based Master Bank's licence because of what it called "large-scale dubious operations", raising the possibility of a wider crackdown on the country's banks.
An announcement by the central bank on Wednesday referred to a failure by Master Bank, a mid-sized lender with significant retail operations, to observe anti-money laundering laws, false accounting, and loans to connected parties.
The move may signal that the central bank under new governor Elvira Nabiullina aims to clamp down on shady activity by banks.
"That shows that the central bank is getting really serious about enforcing the regulations," said Yaroslav Sovgyra, associate managing director of rating agency Moody's in Moscow. "Right now there seem to be fewer and fewer banks that are untouchable."
As Master Bank has sizeable retail deposits, the withdrawal of its licence will be a costly step that authorities might have been reluctant to take in the past, he added.
Analysts also expressed surprise that authorities were targeting an institution which appeared to have good political connections. Igor Putin, a cousin of President Vladimir Putin, is on the board and was previously a vice-president of the bank.
Kremlin spokesman Dmitry Peskov told Reuters Igor Putin's business activities had no implications for Russia's leader.
"His activities have no relationship to the President and cannot have (any relationship)," he said, adding that there was almost no personal contact between the two men.
Master Bank's website now carries an official statement from the bank saying it is under temporary administration and referring clients to the relevant bankruptcy law.
The bank - one of the largest Russian lenders to have its licence revoked in recent years - did not respond to requests for further information. Igor Putin told Russian media last year that Master Bank was operating strictly according to the law.
Some other Russian banks on Wednesday reported payment difficulties because of agreements with Master Bank.
The rouble hit a two-month low, which traders said might reflect fears bank regulation will be toughened.
Master Bank has been dogged in recent years by negative rumours and allegations, some of which have linked the bank with high-ranking political figures.
In 2011 a parliamentary deputy asked for an investigation into media claims the bank was involved in financing pro-Kremlin youth movement Nashi on the direction of Vladislav Surkov, now an advisor to President Putin. The claims were never confirmed.
In a separate case, Russia's police ministry publicly asked the central bank to investigate Master Bank last year, following the arrest of a former Master Bank manager for suspected money laundering.
On Wednesday, police said that searches were underway at Master Bank's head office as part of a criminal investigation into laundering of more than 2 billion roubles ($61 million).
"The managers of several commercial banks, including Master Bank, organised a scheme for illegal encashment of the money of interested clients through 'one-day firms' and financial credit organisations," the police said in a statement. "With each transaction the wrongdoers took a 7 percent commission."
Central bank chief Nabiullina told the State Duma, the lower house of parliament, that Master Bank had a hole of at least 2 billion roubles ($61 million) in its capital.
"We were forced to take this extreme measure", she said.
The closure of the bank is the biggest test to date of Russia's system of retail deposit insurance, under which the state guarantees small savings if a bank fails.
Around 20 dejected depositors, mostly elderly, had gathered on Wednesday afternoon outside Master Bank's Moscow office, where calls and requests for entry went unanswered.
At one point a woman started screaming through the intercom to be let in. She and others declined to speak to Reuters.
The withdrawal of Master Bank's licence will cost Russia about 30 billion roubles ($917 million), the deputy head of the Deposit Insurance Agency, Andrei Melnikov, told Reuters.
That will be the largest payout to depositors since the agency was created in 2004 to boost confidence in the banks.
Master Bank is Russia's 41st largest bank in terms of retail accounts and deposits, according to data from Interfax.
Despite efforts to improve regulation, Russia still has 936 mostly small banks. Nabiullina's predecessor, Sergei Ignatyev, said in February the central bank was concerned by evidence of massive money laundering operations.