Even as the domestic banking sector is witnessing a massive cleanup exercise, the Yogi Adityanath government has planned to merge all the government controlled cooperative banks into a single entity for better management, efficiency and credit growth.
The merger proposal covers UP Cooperative Bank (UPCB), UP Sahkari Gram Vikas Bank (UPSGVB) and 50 district cooperative banks (DCBs). Together, they have a branch network of about 1,800 apart from deposits and advances portfolios of over Rs 160 billion and Rs 150 billion, respectively, at the end of March 2017.
UPCBL, which is primarily a refinance agency, sources soft loan from NABARD to pass on funds to DCB and other financial institutions on low interest rates for the bottom of pyramid borrowers. Each DCB has multiple branches operating in their respective regions.
The state has already constituted an experts committee to prepare an action plan and conduct SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis of the merger proposal and submit its report in 2 months for action.
Besides, there are legal aspects to the merger plan, since these banks are statutory entities and merging them would require proper and legal course of action as well, UP cooperative minister Mukut Bihari Verma told Business Standard.
The merger plan was mooted, as these banks were losing business and failed to face the challenges of modern day banking, when even the new age banks are actively reaching out to the smallest depositor and credit seeker in the rural areas with innovative and technology-driven products.
“The state cooperative banks have failed to measure up the challenges of modern day banking sector. We are tasked with providing a roadmap for the proposed merger and an action plan with regards to their post merger capital requirements, deposit mobilisation, computerisation, staff restructuring etc,” a committee member said on condition of anonymity.
Meanwhile, UP cooperative principal secretary M V S Rami Reddy said the process to recapitalise and modernise the cooperative banks was already underway to give them more commercial viability with the help of modern technology.
The state had announced to infuse fresh capital in 16 ailing DCBs operating in Faizabad, Shravasti, Allahabad, Sitapur, Hardoi, Azamgarh, Fatehpur, Gorakhpur, Basti, Ballia, Siddharthnagar, Deoria, Sultanpur, Jaunpur, Ghazipur and Bahraich districts.
These 16 DCBs were earlier served notices by the Reserve Bank of India (RBI) for failing to adhere to financial and licensing norms. However, now these banks have been provided with fresh licenses.
There is a budget of about Rs 12 billion for ushering in turnaround in these cooperative institutions baulked down by liquidity crunch, non performing assets (NPA), lack of resources etc.
DCBs provide soft loans to Primary Agricultural Credit Societies (PACS), which are the smallest co-operative credit institutions in the country’s hinterland, supporting short term farm and crop loans to farmers.