Panel moots merger of UP co-operative banks to create Rs 35,000 cr entity

The committee's report under consideration of Adityanath government

Amid the ongoing process of consolidation in the domestic public sector banking space, an expert panel has suggested the creation of a single state controlled lender in Uttar Pradesh by merging all the co-operative sector banks in the state.

The proposed UP Co-operative Bank, created after the merger, will comprise more than 1,000 branches with a balance sheet of nearly Rs 35,000 crore, which could even grow to more than Rs 50,000 crore in the next five years with a moderate growth rate of 8 per cent.

Earlier the Adityanath government had formed an expert committee to make recommendations in this regard. “Our report has been submitted to the state government for taking the final call on the proposed merger of the state co-operative banks,” a member of the panel told Business Standard on condition of anonymity, adding that the Covid-19 lockdown had delayed the whole process.

There is the proposal to merge UP Co-operative Bank (UPCB), UP Sahkari Gram Vikas Bank (UPSGVB) and 50 district co-operative banks (DCBs).

He noted there was an urgent need to merge these co-operative banks for sustainability, since they had already been running in huge losses, while the lockdown had led to a further deterioration of their financial condition.

The panel’s report has recommended a composite action plan for the post-merger capital requirements of co-operative banks, deposit mobilisation, staff restructuring etc.

Over the past decades, the co-operative banks, which once provided a yeoman’s service in the rural hinterland by providing timely credit to farmers for farm sector needs apart from offering deposit facilities, gradually failed to match up to modern banking.

Meanwhile, the process to recapitalise and modernise these co-operative banks had been underway already with the state earlier announcing to infuse fresh capital into 16 ailing DCBs operating in Faizabad, Shravasti, Allahabad, Sitapur, Hardoi, Azamgarh, Fatehpur, Gorakhpur, Basti, Ballia, Siddharthnagar, Deoria, Sultanpur, Jaunpur, Ghazipur and Bahraich districts.

In the past, these 16 DCBs had been served notices by the Reserve Bank of India (RBI) for failing to adhere to the financial and licensing norms. However, the licenses were given to them later.

Last year, Adityanath had even raised concerns over the rising non-performing assets (NPA) and poor loan recovery of the state co-operative banks, and directed the state co-operatives' department to analyse the reason gehind the burgeoning NPAs and take immediate measures, while fixing the accountability of concerned officials and taking stern action.

At the end of September 2018, the co-operative banks in UP had a branch network of 1,589 with deposits and advances of Rs 16,750 crore and Rs 13,513 crore, respectively.