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Marriage season The only option left for weak and small UCBs is to merge with bigger peers, feels Abhijit Lele The mergers and acquisitions wave has finally hit the shores of co-operative banking. Of the 1,800 urban co-operative banks (UCBs) across the country, 12 have been absorbed by stronger ones since March 2005. The Reserve Bank of India (RBI) says the consolidation drive is aimed at a non-disruptive exit of weak or unviable UCBs. But what compounds the problem is that over 80 per cent of the co-operative banks are weak or perceived to be weak, while there are just a handful of potential acquirers. Bankers say the task is daunting but not impossible. At help is the Task Force on Co-operative Urban Banks comprising RBI, state governments and local\central co-operative federation officials. The main driver for consolidation is the urge of three Maharashtra-based co-operative banks -- Mumbai-based Saraswat Co-Operative Bank and Shamrao Vithal Co-operative Bank and Pune-based Cosmos Co-operative Bank -- to expand their reach given the freeze on opening new branches for the last two years. What has worked in the favour of M&As is that the number of weak UCBs acquired thus far were ideal targets to expand the branch network of the acquirer.
It doesn’t matter for RBI what the intention of the acquirer is. The regulator is concerned about the financial impact of amalgamating a weak UCB into a stronger one and sees to it that the depositors’ interests are protected. Says D Krishna, chief executive of National Federation of Urban Co-operative Banks and Credit Societies, “The consolidation is driven by the objective to save small banks and does not have the spirit of corporate M&As, which are based on synergy.” The RBI has in the last one-and-a-half year cleared acquisition of 17 UCBs in distress. The process of merging 12 of these distressed banks is complete. Saraswat took control of Maratha Mandir in March 2006. Shamrao Vithal merged Shree Saptashrungi Urban Co-operative Bank with itself in May 2006. Elsewhere, Premier Co-operative Urban Bank from Secunderabad merged with Cosmos in 2005. Premier was the only profit-making UCB to merge as it was hit by a crisis of confidence among UCBs in Andhra Pradesh. Even the slightest excuse can make a good UCB weak. Many UCBs, especially in south-western Maharashtra had to bear the brunt of the moratorium on United Western Bank (UWB), a private commercial bank that has since been merged with the Industrial Development Bank of India. HOME Business Standard • November 2006 |
