Kerala Bank: Malappuram DCB’s fate could trigger debate

KOCHI: Malappuram District Cooperative Bank (DCB) will pose a big question mark before the State Cooperative Societies Act as well as the Reserve Bank of India (RBI) in the ‘unlikely’ event of Kerala Bank becoming a reality in the near future.

“An approval for merger for sure will hand out a double-edged sword,” said GM of a DCB. Should RBI decide in favour of  Kerala Bank through the merger of 13 DCBs with Kerala State Cooperative Bank (KSCB), conceding simple majority as a prerequisite as lobbied by the Kerala government, where will be the place of Malappuram DCB, whose members out-rightly rejected the move by refusing even a simple majority in favour of merger?

Malappuram has decided to go it alone. The catch is that the authorities will inevitably notify the new Section 15 (amended) of the State Cooperative Societies Act as a prelude to establish Kerala Bank by doing away with the three-tier system and bringing a two tier-system in place.

This will necessitate the Primary Agricultural Cooperative Societies (PACS) in Malappuram to become direct shareholders of the newly merged entity – Kerala Bank as PACS cannot keep funds or own the shareholding of Malappuram DCB, which will cease to be regulated by Kerala State Cooperative Societies Act in the event of such a notification.

In the new order, there won’t be space for DCBs. In such an eventuality, where will Malappuram DCB, which will still hold a proper banking licence from RBI go?

The merger of DCBs with KSCB will be a litmus test for the Cooperative Societies System in the state because, following the merger, Malappuram DCB will be left with no shareholders and no share capital to run the show, but only can flaunt a valid banking licence.

The government has been eagerly waiting for months together for the RBI nod to the formation of Kerala Bank even as the lone Malappuram DCB has rejected the merger move.

The primary agricultural cooperative societies (Pacs) under the Malappuram DCB, is the only ‘black sheep’ that played truant by not falling in line with even the diluted ‘simple majority’ theory set forth by the government.

According to sources close to RBI, it is unlikely that the regulator will give a go-ahead soon for the formation of Kerala Bank that will fulfil the Finance Minister Dr Thomas Isaac’s dream of creating a big Kerala Bank. Businessbenchmark.news is yet to receive a response to a query seeking the status of Kerala Bank, sent to RBI more than a month ago.

While nine DCBs green-signalled the merger move with two-thirds majority as required by the Banking Regulations Act 1949, four DCBs –Kottayam, Idikki, Ernakulam and Wayanad favoured the merger with a simple majority (not less than 51 per cent), but falling short of two-thirds, which is the rule of the game.

In fact, government had amended the two-thirds rule by diluting the regulatory requirement under the State Coop Act to simple majority in an attempt to remove this key hurdle that poses roadblock to the merger move.

The issue here is that on the one hand, bank mergers fall under the Banking Regulations Act, which insists on the backing of two-thirds members of the mergee bank and on the other, one DCB – Malappuram has failed to drum up even a simple majority.

 

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