The Hindu Business Line : Looking for a fresh start

According to some of the banking industry analysts, co-operative banks would be in the running for a place in the fastest growing sectors in the country.

CONSOLIDATION seems to be emerging mood in the co-operative banking sector these days. Riding this sentiment are a number of leading co-operative banks as they have set out to play by the rules that govern the corporate world.

Thus, terms such as mergers and acquisitions are getting into lexicon of the Indian co-operative banking industry as more and more banks in this sector are looking to join hands in a bid to survive.

Even as banking industry is awaiting big-ticket mergers like the much-awaited one between Bank of India and Union Bank of India, the co-operative banking industry is expected to throw up a few mergers of their own. True, this route will be used extensively by the sector to take care of the weak entities, but more heartening is that there will also be instances of some of the stronger players opting to merge with each other.

The trend is already picking up with two co-operative banks in the pink of health — Co-operative Bank of Rajkot (deposit base of Rs 285 crore and nil NPA) and Rajkot People's Co-operative Bank (deposit base of Rs 95 crore and 5 per cent NPA). Coming from Gujarat, a state still plagued by the demons of the disaster that befell the sector following the Madhavpura Mercantile Co-operative Bank meltdown, this is expected to set a new trend and could well trigger renewed depositor interest.

Meanwhile, quite a few acquisitions of weak co-operative banks by stronger players are pretty much on the cards. One such instance would involve three such entities — Maratha Mandir Co-op Bank, South Indian Co-op Bank and Nasik People's Co-op Bank — being put on the block for a consolidated deal. The suitors include Saraswat Co-operative Bank with a deposit base in excess of Rs 4,000 crore.

According to some of the banking industry analysts, co-operative banks would be in the running for a place in the fastest growing sectors in the country. A sure indicator to this is the1,000 licences that have been issued in this sector over the past decade. At the latest count, the aggregate deposits in this sector was to the tune of Rs 60,000 crore, give or take a few hundred crores and the number of banks, some 2,000.

Little wonder then that the Reserve Bank of India is looking at a comprehensive roadmap to the sector's revival by way of a `vision document' that is slated to come out by March-end. The document is presently under preparation a Standing Advisory Committee, chaired by Mr V. Leeladhar, Deputy Governor of RBI. Some of the key areas likely to be addressed in the document are corporate governance, NPA management, loans to directors and capital adequacy norms

Meanwhile, it is clear that the recently issued RBI guidelines for mergers and amalgamations in the co-operative banking sector have already set the tone for things that would follow. The RBI is advising those banks that are getting into the merger/ amalgamation mode to conduct a formal due diligence, in accordance with the recently issued guidelines for merger/amalgamation of co-operative banks.

The one positive spin-off from this would be that the role of Deposit Insurance and Credit Guarantee Corporation as a regular fall-back option for the liquidated co-operative banks may ease in the coming days. The signal emanating from co-operative banks that avail the amalgamation/ merger option would be much more positive compared to the instance of those travelling the liquidation route.

It is in this context that the co-operative banking industry is looking up to the RBI `vision document' to play a pro-active role, laying down new ground rules for the sector. In the bargain, it is also looking to hopefully close the chapter on the unsavoury times that marked in the industry in the none-too distant past.

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