The Reserve Bank of India has said it will consider merging the district central cooperative banks with the state cooperative banks, which would be subject to various conditions, including that a proposal would have to be made by the state government concerned. .
The Banking Regulation (Amendment) Act, 2020 has been notified for State Co-operative Banks and Central District Co-operative Banks with effect from April 1, 2021. The merger of these banks must be sanctioned by the Reserve Bank of India.
The central bank released the guidelines after a few state governments approached it to merge central district cooperative banks with state cooperative banks as a two-tier short-term cooperative credit structure.
In accordance with the guidelines, the RBI will consider merger proposals “when the state state government makes a proposal to merge one or more state central district cooperative banks with the state cooperative bank after conducting a detailed study of the legal framework ”.
In addition, there should be an additional capital injection strategy, assurance of financial support if needed, a projected business model with clear profitability, and a proposed governance model for the merged bank.
The proposed merger must be approved by the required majority of shareholders. In addition, NABARD is to review and recommend the state government proposal.
“The proposed merger of the district central cooperative banks with the state cooperative banks will be considered by the Reserve Bank in consultation with NABARD and the sanction or approval will be a two-step process,” the guidelines say.
In the first step, “in principle” approval will be granted subject to certain conditions being met, after which merger processes can be initiated by all parties involved.
After the completion of the first step, NABARD and RBI can be approached for final approval with compliance report, as directed.
The guidelines also stated that if, due to a net worth-based share exchange ratio, shareholders of certain central district cooperative banks could not be granted any shares, then the state government should inject enough capital into these lenders to ensure that shareholders are allocated at least one unit each.