More co-op bank mergers seen

The merger of the Maratha Mandir Co-operative Bank with Saraswat Co-operative Bank is expected to kick off the consolidation phase in the co-operative banking sector.

The Reserve Bank of India had imposed a directive on both the Maratha Mandir Co-operative Bank and the South Indian Co-operative Bank on account of their deteriorating financial health.

The directive implies freezing of their banking businesses.

The apex bank has received proposals from various co-operative banks looking to acquire sick banks such as Samasta Nagar Co-operative Bank, Raghuvanshi Co-operative Bank, Jai Hind Co-operative Bank, Junagadh Vibhagya Nagarik Sahakari Bank and People Co-operative Bank in Nasik.

Banks looking for possible takeover candidates in the co-operative space include Saraswat Co-operative Bank, Shamrao Vithal Co-operative Bank, Kapol Bank and Abhudaya Co-operative Bank.

Talks of consolidation in the co-operative sector have gained momentum after the RBI released detailed guidelines on mergers and amalgamation early this week.

According to the guidelines, a co-operative bank can merge only with another co-operative bank situated in the same state or with another one registered under the Multi State Co-operative Societies Act.

The amalgamation of entities will require formal approvals from registrar of co-operative societies/central registrar of co-operative societies and the RBI.

The consolidation in the co-operative sector is inevitable, said the managing director of a Karnataka-based bank.

There are 2,104 co-operative banks in the country. However, according to a survey by a leading consultant, there is room for only around 200, he added.

Deepak S Patil, chief executive officer of Shamrao Vithal Co-operative Bank, said the bank has submitted a letter of intent to the RBI indicating its interest to acquire the Maratha Mandir Co-operative Bank and the South Indian Co-operative Bank.

"We will also submit the merger plan to the central bank early next week," he added.

Saraswat Co-operative Bank has submitted proposals to the banking sector regulator, expressing its intentions to acquire Maratha Mandir Co-operative Bank, South Indian Co-operative Bank and People Co-operative Bank.

"We have expressed our intentions to acquire a sick bank. We expect the RBI to grant us some concessions in return," said the managing director of a co-operative bank.

The Sindh Mercantile Co-operative Bank has also submitted a proposal to the RBI to acquire the Gandhidham Co-op Bank. Taking over a troubled bank will have a negative impact on the acquiring bank's balance sheet.

At the same time, this will give the acquirer access to new locations and a ready-made deposit and advances base, said a chairman of a Gujarat-based co-operative bank.

Of the 2,105 co-operative banks in the country, 179 banks are under liquidation at the end of June 2004.

The state-wise distribution of branches shows that around 80 per cent of the urban co-operative banks (UCBs) are concentrated in five states - Maharashtra (658), Gujarat (359), Karnataka (321), Andhra Pradesh (169) and Tamil Nadu (136).

Only nine UCBs had a deposit base of more than Rs 1,000 crore (Rs 10 billion), while about 60 per cent of them had a deposit size of less than 25 crore (Rs 250 million).

The gross non-performing assets (NPAs) of 50 scheduled UCBs was 28.8 per cent in March 2004, while net NPAs was 17.1 per cent in March 2004.