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on Co-operative banks
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only option left for weak and small UCBs is to merge with bigger
peers, feels Abhijit Lele
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.
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
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.
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.
compounds the problem is that over 80% of the co-operative
banks are weak or perceived to be weak, while there are just
a handful of potential acquirers
doesnt 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.
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.
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.
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.
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