State govts consolidating co-op banks

NEW DELHI: Two years after demonetisation exposed the underlying corruption, political control and financial irregularities in district co-operative banks, state governments have finally initiated a consolidation drive for these banks, which have been facing financial stress and undue scrutiny.

In Maharashtra, which has the maximum number of district cooperative bank branches, more than 105 of these banks are facing liquidation, and the state government has already made a list of branches which have remained non-functional for the last 10 years without a sign of revival. Thirty-one district co-operative banks (DCCBs) across the state had claimed that they suffered a loss of `230 crore due to demonetisation.

Punjab has also announced that it will be merging 20 district central cooperative banks whose capital to risk assets ratio (CRAR) fell below 9 per cent post demonetisation with the Punjab State Cooperative Bank, which is necessary for lending as mandated by the Reserve Bank of India.The state government had claimed that the district central cooperative banks had incurred huge losses after demonetisation and required fresh cash infusion of `400 crore to be back in business and the move would help to improve the CRAR ration to 12 per cent.

Punjab is not alone in going for consolidation. Even the Kerala government has proposed merging all the 14 district cooperative banks with the State Cooperative Bank to form a Kerala Cooperative Bank. The RBI gave its nod after suggesting a few procedures which the state is working on. Together, it will have a deposit base of `110,000 crore, accounting for 30 per cent market share of all banking transactions in Kerala.

In Uttar Pradesh also, 16 out of 50 DCCbs are facing a liquidity crunch. However, rather than go in for consolidation, the state government has decided to infuse `1,200 crore to restore the financial health of the district co-operative banks.

During demonetisation, the lack of regulation became apparent as none of the rural cooperatives were allowed to exchange old notes, citing either the status of technology or the status of management.
The Ahmedabad District Cooperative Bank hit the headlines after it secured deposits of `745.59 crore of the spiked notes. It also highlighted the fact that most of the District Cooperative Banks had political leaders as board members.

To Top