RBI sets March 31 deadline for merger of district, state cooperative banks

Thiruvananthapuram: Reserve Bank of India has accorded Kerala in-principle nod to go ahead with the formation of the Kerala Bank. The state has been set a deadline of March 31, 2019, the last day of the ongoing 2018-19 fiscal, to complete the merger of the 14 district cooperative banks with the apex Kerala State Cooperative Bank. The RBI has also laid down stringent conditions for the merger.

The conditional sanction was informed in a letter sent by the Central Bank to the state on Wednesday. The measures for final approval and the licensing procedures will start only after the merger is reported to the RBI.

The two-tier bank

The proposed Kerala Bank is a two-tier system with the apex Kerala Cooperative Bank at the Centre and the large network primary agricultural cooperative societies (PACS) functioning not as branches but as “autonomous nodes” around it. While KCB will roll out modern banking services, PACS will continue to serve people independently at the local level. The second tier in the existing three-tier cooperative banking structure in the state, the district cooperative banks, will cease to exist. The director boards of all the 14 DCBs were dismissed on April 10, 2017. In September, 2016, the Registrar of Cooperatives had frozen fresh recruitments in DCBs, and also prohibited the opening of branches by them.

RBI's conditions

Here are some of the RBI conditions the state has to satisfy. One, the merger has to be carried out strictly adhering to the Kerala Cooperative Act and Rules. Two, The state should ensure that there are no court orders staying or banning the merger. Three, the merger plan should be read out to the employees of Kerala State Cooperative Bank and district cooperative banks.

Four, a merger resolution should be passed by the general body of both district banks and the apex bank with a two-thirds majority. Five, the district banks, the state cooperative bank and the state government should sign a joint MoU. Six, the capital adequacy and net worth of the post-merger bank should match the RBI standards.

Seven, the balance sheet of the new bank formed after the merger should have the capability to carry out all legal banking functions. Eight, an asset-liability valuation has to be carried out and reserve amount should be kept apart for non-performing assets. Nine, customers should be intimated if there is any difference in the interest rates of the apex bank and the district banks. Ten, the new bank should possess the state-of-the-art software to provide services to former customers of district cooperative banks.

Eleven, the Kerala Bank should have a board of management; suitable amendments should be made to the Kerala Coperative Act for the purpose. Twelve, the clearance of Deposit Insurance Guarantee Corporation should be secured for the merger. Thirteen, if the apex bank or the district banks have deposits in the Treasury, it should be withdrawn in a phased manner. Fourteen, no new cooperative societies with the name 'bank' can be registered in Kerala.