Kerala chief minister Pinarayi Vijayan (Photo: Mint)
Kerala chief minister Pinarayi Vijayan (Photo: Mint)

Post RBI nod, Left govt racing against time to create 'Kerala Bank'

  • Once created, the Kerala Bank could become the largest scheduled co-operative bank in the country
  • With the approval valid until March, the state govt has the onerous task of setting it up

Bengaluru: Kerala's Left Front government is racing against time to deliver one of its most ambitious project: A single bank that will take on big banks by merging 13 co-operative banks. The "Kerala Bank", as the project has been called, received final approval from the Reserve Bank of India on Wednesday, which is valid until next March, thus setting the clock ticking for the humongous task of setting it up. Once operational, the Kerala Bank will be the largest banking network in the state, according to the government.

The bank was conceived by the communist government to strengthen the co-operative structure when it came to power three years ago. However, the idea did not have a smooth ride so far.

The Kerala Bank proposal has been on a collision course with some of the District Cooperative Banks (DCBs) that it wants to merge, who are afraid it will be against their financial and political interests. However, the government managed to merge 13 banks recently after passing an unusual ordinance, which amended rules of the Kerala Co-operative Societies Act that said the transfer of assets and liabilities of co-operative banks could be made by support of a simple majority of board members, as against a two-third majority stated in the original law. Politically, it was easier to get a simple majority than a two-thirds majority for the government in DCBs.

The ordinance is opposed by district banks controlled by the opposition Congress in Kerala High Court and the RBI approval said it is subject to the final outcome of these cases. Meanwhile, the government has not been able to convince one co-operative bank in Malappuram district, controlled by the opposition-ally Indian Union Muslim League, towards the amalgamation. The bank rejected the proposal in two general body meetings previously. With such political and legal odds stacking up against it, setting up of the bank will be no small task for the government.

Kerala's co-operative sector minister, Kadakampally Surendran, is hopeful though. "Malappuram DCB is among those who thought Kerala Bank will not get final approval from RBI. In the new context, I suppose they would do a rethink. I don't think Malappuram DCB will choose to alienate itself from the entire cooperative banking sector in Kerala. We will give them another opportunity (for merger)," said Surendran. Kerala chief minister Pinarayi Vijayan also expressed confidence. "Happy to know that the Reserve Bank of India has given the final nod for the setting up of the Kerala Bank. We hope that the formation of the new bank will accelerate the growth of the state," he said in a Facebook post on Wednesday.

Once created, the Kerala Bank could become the largest scheduled co-operative bank in the country. With all the 14 DCBs combined, the new bank will sit upon a deposit base estimated to be 1,10,000 crore, and 30% market share of total banking transactions in Kerala. Surendran said that the government now has to go through the account books of district cooperative banks, set up a director board for the proposed new bank in the fashion of an urban co-operative bank, and scout a Chief Executive Officer who can navigate the initial years despite opposition protests. The district cooperative banks shall have to surrender their licenses and apply for fresh ones as branches for the new bank. The state must also ensure that the proposed new bank a 9% capital adequacy ratio (CAR) and frame a transfer price system for fixing the share capital for member units of DCBs post-merger, to comply with the RBI approval.