Kerala: Cooperative ordinance signals new bank

Thiruvananthapuram: The disbanding of the director boards of district cooperative banks (DCBs) is nothing but a prelude to doing away with them, the first step towards the creation of the Kerala Bank. The severe currency shortage faced by the state after demonetisation, and the disappearance of SBT, are officially stated as the reasons that have prompted the government to initiate swift measures for the formation of 'Kerala Bank'. The proposed bank would be formed by merging the DCBs with the State Cooperative Bank. Giving clear indication of the government's motives, last September the Registrar of Cooperatives had frozen fresh recruitments in DCBs, and also prohibited the opening of branches by them.

The expert committee headed by M. S. Sreeram of IIM Bangalore, which had been formed to give shape to the proposal, will hold final consultations with top government and bank officials, and also technology experts, during April 17 and 18. The terms of reference of the Sreeram committee include an analysis of the proposed structural changes, preparation of a detailed plan to incorporate the assets and liabilities of the various cooperative banks, review of the human resource, and the creation of a framework to deepen technology adoption.

Finance minister Dr T M Thomas Isaac said that the proposed bank would be the biggest bank in the state. “Each DCB has 30-40 branches and when all of these are merged with the branches of the State Cooperative Bank we get a behemoth of a bank with a solid financial base,” the minister said. The proposed bank will not be hobbled by the kind of liquidity restrictions DCBs suffer. Significantly, Isaac said that Kerala Bank could effectively tap into the nearly Rs 1.35 lakh crore non-resident Keralite deposits. “As it stands, NRK deposits are parked in nationalised and private banks that lend outside the state,” the minister said.

However, economic experts question the logic of a Kerala bank. “It makes no economic sense. The first question that has to be asked is whether there is a need for such a new entrant in the state’s financial sector,” a former bureaucrat said. “Absolutely not,” he said. “Kerala is the country’s best banked state. This was why we were the least affected by demonetisation,” he added. The state expects an RBI nod for Kerala Bank soon as the apex bank had approved a merger of Jharkhand State Cooperative Bank with the DCBs.