Solo dissent not to affect Kerala Bank

Another chance for Malappuram DCB to approve merger

The recalcitrant stance adopted by the Malappuram District Cooperative Bank (DCB) on merging with the Kerala State Cooperative Bank is unlikely to impede the formation of the proposed Kerala Bank within the time frame stipulated by the Reserve Bank of India (RBI). The government has offered one more chance to the Malappuram District Cooperative Bank director board to approve the scheme of amalgamation that has been accepted by the banks in 13 other districts.

The United Democratic Front leadership has refused to budge from its stated position on the merger and reiterated that it would oppose the formation of the new bank. This means that the Malappuram District Cooperative Bank alone will have to remain as a separate entity.

Many challenges

Banking sector sources told The Hindu that once the government completed the process, one district bank alone could not abstain from the process. Once the proposed Kerala Bank becomes functional, it would open branches all over the State, including Malappuram, and that would throw fresh challenges to the lone district bank. Most importantly, the district banks have to furnish their applications for refinance from the National Bank for Agriculture and Rural Development through the State-level apex cooperative bank.

Refinance facility

On deciding to boycott the merger, the Malappuram bank would not be able to avail itself of the refinance facility. The government could also refuse guarantee for the loans sought by the bank if it refused the merger process. Though NABARD has a direct lending option to district banks, it would not be easy for the district bank to explore the option since the rate of interest was unaffordable, sources said.

A majority of the primary banks in Malappuram district, including those governed by the UDF constituents, were reported to have favoured the merger, but were forced to fall in line with the State leadership’s decision to oppose it, sources said.

The RBI has clarified that the formation of the new bank would be subject to the High Court decision on the pending cases regarding the formation of the new bank. Since the government had duly consented to abide by the RBI norms, stipulations of NABARD and the Kerala State Cooperative Societies Act, it would be easy to overcome the legal tangles too, sources said.