Govt may seek legal opinion on Kerala Bank project

Decks expected to be cleared by month-end

 

KOCHI: The State government may seek legal opinion on the formation of Kerala Bank (the name to be finalized yet) before it could step out to expedite the processes that involve the merger of all 14 district cooperative banks (DCBs) and Kerala State Cooperative Bank (KSCB) to form a single banking monolith.

Talking to businessbenchmark,news, Kadakampally Surendran (seen in the picture) the Minister for Co-operation, Tourism and Devaswoms, said the government hopes the RBI approval will be in place by the month-end (September).

“I firmly believe the meeting of Board of Financial Supervision (BFS), an arm of RBI, to be held on September 26 will give the final go-ahead for the bank. We are of the view that we have responded to all RBI queries on the new banking venture satisfactorily,” Surendran said.

According to sources, RBI has sounded to the State government that it would be always better to be prudent on the legal framework before the real work on the bank takes off, so that any legal irritants could be preempted in time.

According to experts in the field, more than finding adequate capital or the latest IT system for the bank, the toughest job in hand for the government will be to find an answer to the daunting question on ‘so many branches and so many people’, an obvious question that follows any merger for that matter.

According to an estimate, around 850 branches and thousands of staff will be left at the disposal of the new bank management to be accommodated effectively and with political correctness – which will be a challenge of a tall order.

The government cannot afford to push one more institution to cross the red line on operational efficiency, but at the same time find an answer to how all these branches and staff can be saved from being redundant.

The Sriram Committee report on the new bank has hinted at the government’s exclusion from being a shareholder in the new format as its shareholding in the cooperative banking system will most likely be converted into debt in the new bank.

According to the plans, the Kerala Government will convert its equity of Rs474 crore into subordinate debt and keep itself away from the ownership structure of the new bank.

Given the extent of financial scams that make regular headlines in India of late, the Kerala Government’s laissez-faire approach towards the new venture will always be a positive, according to banking experts.

In essence, KCB should be a bank that represents the stake of as many cooperative institutions as possible and provides priority services to the co-operative sector. The committee has also recommended removing the category of individual shareholders and redeeming their share capital at each stage of the merger process.

 

 

 

 

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