State Bank of Sikkim under Reserve Bank of India's regulatory purview

The Reserve Bank of India (RBI) has brought State Bank of Sikkim under its regulatory purview. 

The bank, established five years before Sikkim acceded to India in 1973, provides treasury operations for the state government. It only operates within Sikkim and is wholly-owned by the state government.

The bank currently has 42 branch offices and operates three revenue counters for government works. The bank’s ownership structure will not change, but it will be regulated by the RBI on a par with other banks. 

Emails sent to the bank and the state government did not get any response.

For years, the RBI had flagged concerns that State Bank of Sikkim operated in a sort of regulatory vacuum. In 2015, the central bank, under former RBI governor Raghuram Rajan, had asked the Centre to sort out the vacuum. In the current statutes, neither the Banking Regulation Act 1949, under which public sector banks operate, nor the Companies Act, under which the private sector banks operate, apply to State Bank of Sikkim. The bank’s special status owes to Article 371F of the Indian Constitution, which wrote in a set of special provisions for the north-eastern state.

While the bank is puny, the RBI’s concerns stem from the fact that even basic safety measures for depositors like provisions of the Deposit Insurance and Credit Guarantee Corporation that offers an insurance cover of up to Rs 5 lakh does not apply to this bank. So in the event of a crisis, there is no fallback available.

Sachin Chaturvedi, a member of the RBI’s board of governor, who is also on the eastern local board of RBI, said it would expand the role of State Bank of Sikkim. It can offer a wider variety of services to the north-eastern states, which have low banking penetration.

A model that could be adopted for the bank to become RBI’s agent for banking business in the state is on the pattern of J&K Bank, which caters to the union territories of Jammu & Kashmir and Ladakh, besides collecting central taxes for the central board of direct taxes.