At a time when scheduled urban banks are facing constraints in meeting strict norms for capital adequacy and limitations in raising funds, Saraswat Cooperative Bank has initiated steps to become a commercial bank.
“A slew of initiatives have already changed the bank’s status quoist culture to a modern-day banking solution provider. The bank has already embarked upon an ambitious target of achieving a business level of Rs 1 lakh crore by 2021. Against this backdrop, converting it into a commercial bank is being seriously looked into. However, the issue is at a preliminary level,” Chairman Eknath Thakur told Business Standard.
The city-headquartered lender, which has a total business of Rs 27,313 crore, is working out a detailed plan in this regard.
This is not the first time that a cooperative bank would be converted into a scheduled commercial lender. In May 1995, Development Credit Bank (DCB) was converted into a Scheduled Commercial Bank in the wake of the country’s economic liberalisation, according to the DCB website.
The Reserve Bank of India’s assessment of the bank’s financial health, operations and systems will be among the key factors in considering its proposal for conversion.
Saraswat Bank is yet to submit a proposal to the banking regulator.
“As an urban cooperative bank (UCB), we face two challenges in building our capital base to support credit growth. First, present legal norms allow UCBs to only issue shares at face value (say at Rs 10 per share) even though its the book value, which reflects financial strength of bank may be strong. In other other words, the bank is not able to issue shares at premium despite better standing. Another aspect is despite being a cooperative body, bank pays tax on the profits, limiting ability to recoup resources for capital,” Thakur added.
“The Reserve Bank of India treats us on par with commercial banks when it comes to meeting regulatory norms. However, urban cooperative banks are not allowed to do some business which commercial banks are permitted to operate in,” he said.
The UCBs also face the challenge of grooming human resources. Thakur said that over a period, ticket size of assets (loans) and liabilities (deposits) have grown, especially for industry and business accounts. Bank staff and directors should be capable to handle larger proposals. That needs grooming in project appraisal, day-to-day monitoring and documentation.
As on March 31, the bank’s deposits grew to Rs 15,800.96 crore from Rs 14,266.73 crore a year ago, while its profit surged to Rs 212.27 crore from Rs 119.67 crore.
Ashok Pandit, former chairman of the bank, said, “Over the years, the Saraswat Cooperative Bank has not only increased its presence across the country but outnumbered some of the public sector banks on some of the parameters. There is no need to over fear. This bank has the potential to become a commercial bank, as we have seen similar cases including that of Development Credit Bank.”