Kerala Bank gets RBI nod; LDF govt inches closer to fulfilling manifesto promise

However, approval is subject to outcome of cases in HC challenging proposed mergers

Representational-Image-NPA-Bank-PTI Kerala Bank will be formed by merging all 13 District Cooperative Banks (DCBs) with the Kerala State Cooperative Bank (KSCB) | File

Kerala Bank, the ambitious project of the Left front government in Kerala is closer to becoming a reality after the proposal received the Reserve Bank of India (RBI) approval. Kerala Minister for Cooperation Kadakampally Surendran on Wednesday informed via Facebook that the state government's proposal to set up the bank by merging all 13 District Cooperative Banks (DCB) with the Kerala State Cooperative Bank (KSCB) has received the go-ahead from the RBI. He said there were no further challenges in the formation of Kerala Bank. 

However, reportedly, the RBI approval is subject to the outcome of the cases challenging the provisions in the ordinance promulgated by the state government to circumvent district cooperative banks’ resistance towards their amalgamation for the formation of Kerala Bank pending before Kerala High Court. In its communique sent to the Kerala Government on October 9, the RBI has made the merger conditional on the high court verdict in the various cases that have been led against the 14(A) clause inserted in the Kerala Cooperative Societies Act, reported Onmanorama.

And hence, the high court judgements would be crucial for the bank to come into being. For a district cooperative bank to merge with the State Cooperative Bank, the act had originally insisted on a two-third majority in each DCB. As it turned out, the merger had the consent of two-third members only in seven DCBs, the report said.

At the same time, Surendran was yet to make it clear when Kerala Bank would begin functioning even as some media reports say the lender would begin services on November 1 on Kerala Piravi. The RBI’s approval is valid for a six-month period.

The Kerala government had to take the ordinance route as many district cooperative banks, especially the Malappuram district cooperative bank, raised objections against the proposed amalgamation and approached the high court. This had significantly delayed the formation of Kerala Bank. The minister said the government would give one more chance to Malappuram district bank to rethink their decision.

The ordinance move also invited sharp criticism from opposition parties. More controversies followed when the government decided to take over the liabilities of the district banks that voted in favour of amalgamation.

Kerala Bank, which will have the state’s largest banking network, was one of the major promises of LDF when it came to power in May 2016. 

RBI conditions

 

Surendran said that the RBI has also listed six conditions for the merger, which the minister said Kerala has already complied with. One, the proposed bank is short of Rs 97.92 crore to achieve capital adequacy. The state government has to transfer the amount to the bank before the merger begins. The minister said that the shortage was based on October 2018 figures. "By now we have made up," the minister said.

Two, a transfer price scheme should be instituted in the proposed bank on the basis of the net worth of DCBs. Three, representatives of societies that have no voting rights should be included as special invitees on a rotation basis in the governing council of the new bank.

Four, the structure of the board of management should be based on the guidelines set for urban cooperative banks. Five, there should be at least two professionals in the governing council of Kerala Bank. Six, the RBI approval will be valid only till March 31, 2020, after which the bank has to once again submit a status report to the RBI through NABARD.

(With inputs from Onmanorama)

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