Govt mulling merger of District Co-op banks
The Uttar Pradesh government is mulling a proposal to merge all the district cooperative banks (DCBs) with the apex cooperative banking body the ‘UP Cooperative Bank’.
The proposed ‘UP Cooperative Bank’, created after the merger, will comprise more than 1,000 branches with a balance sheet of nearly Rs 35,000 crore, which could even grow to more than Rs 50,000 crore in the next five years with a moderate growth rate of 8 per cent.
The Yogi Adityanath government, soon after coming to power in March 2017, had taken up the task of revival of the DCBs and had set up an expert committee to suggest the measures. Several states like Kerala, Andhra Pradesh and Telangana have already merged the DCBs with the apex cooperative bank in their respective states.
Most of the DCBs are struggling for survival due to poor credit recovery. Amid the ongoing process of consolidation in the public sector banks by the Centre, the expert panel has suggested creation of a single state controlled lender in the cooperative sector in the state by merging all the DCBs with the UPCB.
“Our report has been submitted to the state government for taking the final call on the proposed merger,” a member of the panel said and added, “The COVID-19 lockdown had delayed the whole process,”
There is proposal to merge UP Cooperative Bank (UPCB), UP Sahkari Gram Vikas Bank (UPSGVB) and 50 district co-operative banks (DCBs).
He noted there was an urgent need to merge these co-operative banks for sustainability, since they had already been running in huge losses, while the lockdown had led to a further deterioration of their financial condition.
The panel’s report has recommended a composite action plan for the post-merger capital requirements of co-operative banks, deposit mobilisation, staff restructuring etc.
Over the past decades, the district co-operative banks (DCBs) with the attached state-wide network of primary agriculture cooperative societies (PACS) are the cheapest vehicle for the disbursement and recovery of agricultural credit. The DCBs with the network of PACS in each district, once provided efficient service in the rural hinterland by providing timely short-terms crop loans to the farmers apart from offering deposit facilities. The DCBs, which get the refinance from the National Agriculture Bank for Rural Development (NABARD) gradually failed to match up to modern banking.
Meanwhile, the process to recapitalise and modernise these co-operative banks had been underway already, with the state earlier announcing to infuse fresh capital into 16 ailing DCBs operating in Faizabad, Shravasti, Allahabad, Sitapur, Hardoi, Azamgarh, Fatehpur, Gorakhpur, Basti, Ballia, Siddharthnagar, Deoria, Sultanpur, Jaunpur, Ghazipur and Bahraich districts.
In the past, these 16 DCBs had been served notices by the Reserve Bank of India (RBI) for failing to adhere to the financial and licensing norms. However, the licences were given to them later.
The NABARD had suspended the refinance facility to several DCBs following their failure to meet the credit recovery targets. Several DCBs were restrained by the NABARD from conducting normal banking operations like disbursing credit and accepting deposits under Banking Regulations Act, 1949.
In 2019, the UP government had raised concerns over the rising non-performing assets (NPAs) and poor loan recovery of the DCBs and had directed the Registrar of Cooperative Societies to analyse the reason for the burgeoning NPAs and take immediate measures, while fixing the accountability. At the end of September 2018, the cooperative banks in UP had a branch network of 1,589 with deposits and advances of Rs 16,750 crore and Rs 13,513 crore, respectively.