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Shamrao Vithal Co-operative (SVC) Bank, the third largest urban co-operative bank in the country, plans to take steps to convert into a private sector bank in the next three to four years.
The board of the 107 year old multi-state co-operative bank has considered this prospect as within the current co-operative banking framework it has limited capital raising avenues to support future growth.
At present, co-operative banks can strengthen their core capital only by issuing shares at face value to members and plough back of profits.
The capital market is off-limits for these banks. This restriction on bolstering core capital is proving to be a stumbling block for growing assets.
The only urban co-operative bank (UCB) that has converted (in 1995) into a private sector bank so far is the Development Co-operative Bank. This bank was re-christened as Development Credit Bank.
About four years back, Saraswat Co-operative Bank, the largest UCB in the country, had announced that it is considering the option of converting into a private sector bank. However, there has been no word from the bank’s management after the announcement.
According to Suresh Hemmady, Chairman, SVC Bank, the bank’s board has discussed the prospect of converting into a private sector bank. However, further movement in this regard depends on the central bank coming out with a clear roadmap for the conversion.
In a recent speech, RBI Deputy Governor R Gandhi said that for large Urban Co-operative Banks, which have reached certain threshold in the size and complexity of business, enabling their graduation into commercial banks can be thought of, so that their further growth is facilitated.
“…Once cooperative banks reach a certain threshold level, they are also expected to follow a regimen like large banks and standardized global practices, which may not be possible within the existing legal structure of cooperative banks…
“Specifically, we need to debate the needed legal framework that will facilitate conversion of cooperatives into joint stock companies, conversion of deposit holders into share holders etc.,” he said.
Speaking at the sidelines of the event to launch SVC Bank’s new logo, Shrinivas Joshi, MD, said in the next five years his bank will increase its business to Rs 45,000 crore (from Rs 17,500 crore as at March-end 2014); number of branches to 300 (from 157 now) and net profit to Rs 200 crore (Rs 103 crore).
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