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Though the problems of Satara-based UWB had very little to do with UCBs in the region, panic spread and depositors queued up before co-operative banks to withdraw money. A few UCBs reported withdrawals in excess of Rs 200 crore in a couple of days.
The revelation of huge losses in Pune-based Suvarna Sahakari Bank only added to the frenzy. Cosmos Bank offered to take over Suvarna Bank, but the very next day Survarna Bank was placed under the control of an administrator. “Initially, people associated with the working of urban banks were quite skeptical about the consolidation, as UCBs are democratically-run institutions. But now, they are pleasantly surprised with the experience thus far. M&As have been accepted as a fact,” points out Krishna. The instances of mergers, though few, have generated the right kind of pressure on the management of banks to put their houses in order. There are indications that at least some banks are proactively taking steps to consolidate. For these banks, mergers are more influenced by emerging competition. In a first case of a strong co-operative bank merging with a bigger and stronger UCB, the Mumbai-based Mandvi Co-operative Bank was absorbed by Saraswat Bank. Mandvi has a strong client base among the Gujarati business community. Says Ekanath Thakur, a director of Saraswat Bank, “Small co-operative banks face huge challenges with new regulations governing their business and it was wise to have merged the financially sound Mandvi.” The RBI’s guidelines make it clear that the central bank would like to deal with a small number of large co-operative banks than large number of small banks. Maharashtra State Urban Co-operative Banks’ Federation chairman Mukund Ghaisas says, “Such union (merger of two strong banks) will give the benefit of scale and bring about cost savings. The duplication of structure and processing can be avoided.” The federation has decided to cajole its 210 financially weak members to explore possibilities of merging with stronger peers. “Most co-operative bankers have realised that allowing banks to go sick only adds to their problems. Timely action (restructuring or consolidation) can avert a crisis and help in keeping the confidence of customers intact,” Ghaisas avers. Most weak banks in Maharashtra came up during the 1990s when a liberal licensing policy was in vogue. Of the 1,872 urban banks in the country, over 650 are in Maharashtra with over 50 per cent share in total business. The state-level TAFCUB may also suggest merger of potentially viable banks. However, the consolidation process is not without challenges. Most important being absorbing employees of target banks and retaining customers. The churn happening in the sector could see the emergence of 10-15 large co-operative banks over the next few years. In fact, Saraswat Bank is already larger than some of the private sector commercial banks such as Ratnakar Bank and Catholic Syrian Bank, says Thakur. Industry experts feel a greater degree of coaxing would be required to push for more mergers as co-operative bank managements won’t find it easy giving up their identities.• HOME Business Standard • November 2006 |
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