Proposed Kerala Bank gets RBI approval

KOZHIKODE: The Left Democratic Front (LDF) government headed by Chief Minister Pinarayi Vijayan is one step closer to the formation of Kerala Bank by merging co-operative banks operating in the state, with the Reserve Bank of India (RBI) showing green signal for the dream project.

According to media reports, the RBI has approved the merger of 14 district co-operative banks in the state into a single entity, the Kerala State Cooperative Bank or Kerala Bank, with the state government as the main sponsor. Though the approval was given two days back, after discussions and consultation that took two years, the state government is keeping it under wraps for various reasons. The RBI board of directors had ratiied the formation of Kerala Bank at a sitting two days ago.

Government is expected to issue an ordinance in this regard shortly. The ordinance is aimed at bypassing roadblocks that are likely to come up in getting the merger of the district banks approved. Co-operative banks ruled by opposition United Democratic Front (UDF) are likely to oppose the merger of branches and getting the mandatory two-third majority approval at co-operative bank general body meetings would be a major task for Kerala Bank proposal. The proposed ordinance would clear the hurdle, according to government sources.

With the formation of the Kerala Bank, the 14 district banks, their 804 branches and the 20 branches of the State Co-operative Bank will cease to exist and become part of the new entity. According to reports, 14 district co-operative banks in the state handle Rs1,000 billion transactions now and have a total investment of Rs700 billion.

The balance after loans and statutory reserve is over Rs200 billion.

The district banks, which earn a proit, are being merged into the state cooperative bank that is running at a loss. Several co-operative banks are holding their general body meetings in which resolutions approving the merger are likely to come up.

Petitions were also iled in courts against the formation of the bank. Those who oppose the proposal including banks run by UDF argue that the real intention of the government is to utilise the Rs700 billion deposits held by the district and state co-operative banks for the interests of the government.

The government, which announced the proposal in the state budget, wanted to set up Kerala Bank to enable the cooperative sector to offer modern banking system to the public and meet competition from scheduled banks.