One more Onam passes; Kerala Bank fate still hangs in balance

THIRUVANANTHAPURAM: Yet another Onam has passed, but the fate of the state’s much-trumpeted dream project called Kerala Bank is now anyone’s guess.

The vexed questions that seek answers are many, the most anxiously awaited being whether the Reserve Bank of India (RBI) will gloss over the Banking Regulations Act and water-down the two-thirds majority prerequisite to accommodate simple majority as the ‘thump rule’ for merger of cooperative banks, as desired by the Kerala Government.

Section 14 of Kerala State Cooperative Societies Act has been amended to accommodate simple majority in place of two-thirds majority, which is also the norm prescribed by the Banking Regulations Act for merger of banks in the country.

But most experts believe the elephant in the room can’t be ignored as the RBI act is meant for the whole of banking industry in the country.

Though many in the industry believe that RBI is unlikely to concede on this key clause, officials in the Cooperation minister Kadakampally Surendran’s office whom this portal met with recently are audacious enough to believe that RBI has already taken a favourable stand on this, and it’s just a matter of time before the deal to get the final stamp.

The issues posing challenges to the formation of Kerala Bank also include several cases filed against the merger, the complex staff issues waiting to rear their ugly head in respect of the cadre merger, and the fate of the Malappuram District Cooperative Bank that has refused to hand out even a simple majority, among other issues.

While nine district cooperative banks (DCBs) have voted the merger proposal with two-thirds majority, four – Kottayam, Idukki, Ernakulam and Wayanad, supported the move with simple majority, whereas Malappuram DCB turned down the proposal with majority standing up against the merger.

“We are moving ahead with the merger of 13 DCBs leaving behind Malappuram, the lone DCB that outrightly rejected the merger,” the source close to ministry said wryly.

He claims that the combined book will have non-performing assets (NPAs) below 10 per cent and the capital adequacy ratio at 10.5 per cent against a minimum required at 9 per cent.

But for the one-time settlement of Rubco’s debt with KSCB and four DCBs paying Rs238 crore along with Rs41 crore owed by RubberMark and Rs27 crore by MarketFed, the NPA level at about 14 per cent would have been another roadblock to the new banking adventure.

According to informed sources, the cooperative banks had to take a deep haircut in the Rubco deal to the tune of about Rs125 crore on account of interest waiver. There were promises as usual that Rubco will have to pay back the amount to the government.

While the share capital of the new entity will be Rs2100 crore, Rs480 crore or 22.85 per cent will be held by the state government. Once the merger is through, the new bank will have 1625 primary agricultural cooperative societies (PACS) and 60 Urban Cooperative Banks (UCBs) as its shareholders.

On the asset side, while the bank hopes to have an aggregate loan book of over Rs40,000 crore, the bank’s deposits are believed to be at Rs66,000 crore, whereas the branch network will have 825 outlets to make it one of the largest bank branch network in the state.

Talking to this portal, a union leader representing the employees of Kerala State Cooperative Bank (KSCB) said there is a glaring incongruity between the employment regimes of KSCB and district cooperative banks (DCBs) and this could be a new thorn in the flesh that can’t be easily disregarded.

On the one hand, the qualifications prescribed for employment by both these organisations are quite disparate and so is the salary scale, which on a rough estimate is around 10 per cent higher at KSCB, on the other, the grades followed by these two systems are materially different.

“For example, KSCB’s senior managers are generally appointed on deputation in DCBs as general managers, and this has already encouraged DCB general managers seeking the post of deputy general manager in the merged Kerala Bank. I think the cadre merger is going to be a hard nut to crack for the government,” the union leader expressed apprehension.

According to a top official in KSCB, the business format followed by KSCB and certain DCBs is also in contrast. There are serious allegations that some DCBs are not loathe to the idea of ever-greening (a fresh loan is given in order to service the existing stressed loan) delinquent loans in order to sweep these bad loans under the carpet. He vouches that KSCB strictly follows the loan norms quite professionally.

“How long this game can continue? Once these loans fall under the radar of RBI (maybe after the merger), they will start showing their real face and this could trigger the emergence of a long line-up of NPAs in the system further exasperating the functioning of the ‘New Bank’,” said the official.

Is simple majority argument genuine?

The idea of ‘simple majority’ has dawned on the government not only from the enthusiasm to merge all DCBs with KSCB in order to establish a 2-Tier system in the cooperative banking space, but more interestingly, the people close to the ministry argue that RBI, in the very start, has written a letter to the government stating that the state can go ahead with the merger of DCBs with KSCB subject to the Kerala State Cooperative Societies Act.

“But what these people conveniently seek to forget is that the earlier Act the RBI referred did have ‘two-thirds majority’ as a precondition for mergers. This was subsequently amended to replace it with simple majority criterion to suit the ‘suitors’ in this deal,” an expert pointed out.

Repeating the refrain that Kerala Bank will become a reality soon, the officials close to the ministry refused to commit anything on the timeframe.

These officials are either clueless about what the real status of the project is or their arrogance finds it too silly on their part to entertain journalists visiting them to discuss the issue, at least in the case of


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