Expecting RBI response on Kerala Bank this month, says state minister

The government of Kerala expects to launch its project Kerala Bank this year, by consolidating the State Cooperative Bank and the 14 district cooperative banks on its territory. The government is expecting a response from the Reserve Bank of India (RBI) for its plans this week, a senior minister from the State said. 

"The matter is before the RBI for approval and we are expecting the initial response from the apex bank to come in by April 25," said Kadakampally Surendran, Minister for Co-operation, Tourism and Devaswoms, Kerala.

"We are taking steps to roll out the plan soon after the approval comes in. The Bank will be established in six month's time. We are expecting Rs 650 billion deposits in the Bank once it is formed," he stated, adding that the aim is to provide the modern facilities to Primary Agricultural Cooperative Societies (PACS) through the new Bank. A taskforce had been formed for the establishment of the bank earlier.

The government is in talks with Indian Financial Technology and Allied Services (IFTAS), promoted by the Institute for Development and Research in Banking Technology (IDRBT), to implement the IT infrastructure for the merged Bank. IFTAS, which has been established by RBI, has been formed to provide IT-related services to the Reserve Bank, banks and financial institutions. Already 35 per cent of the PACS and 45 per cent of the Urban Cooperative Banks have implemented core banking facility on their own and the merger would help bring in modern banking facilities to Kerala Bank.

The government also claims that it was able to reduce the gross losses for the Kerala State Cooperative Bank in the state by 50 per cent during the past two years. The operating profit of all cooperative banks put together has gone up from Rs 128.3 million on March 2016 to Rs 1.48 billion on March 2018.

The formation of Kerala Bank would eliminate the double or repeated charges on services, which would help to provide loans to customers at lower interest rates. This is expected to help the agriculture, traditional works and self-employment sectors. It would also help the State to garner deposits and credits from within. The merger would increase the assets of the proposed bank, which would help it to compete with the other lenders, the government feels.

Unlike other banks, the deposits in Kerala Bank could be provided as credit within the state, which would help the growth of basic facilities in Kerala, said the Minister recently.

The net non-performing assets (NPA) as a percentage for the State Cooperative Bank, as on March 31, 2017, was 2.52 per cent, while for the district cooperative banks it ranged between 3.81 per cent and 16.36 per cent.

The State government has appointed a five-member committee to study the possibilities of forming the bank. The committee submitted a report on April 28, 2017, which helped start initial work in setting up the bank.

The five-member committee pointed out that in the current system, the district banks are allowed to invest their funds in the restricted areas in which they operate, but with the merger, the cash could be disbursed across the State. With the advent of Commercial and Regional Rural Banks, apart from the new generation banks and small financial banks, the sustenance of co-operative banks depend on their ability to offer modern facilities.

The merger would also help to leverage the gap created for a local bank with the merger of State Bank of Travancore with State Bank of India. The PACS would be able to have more powers as a representative of the Kerala Cooperative Bank, said the report.