In a notification, which is sure to disturb a large chunk of co-op banks in the country, RBI has issued guidelines for the process of amalgamation of the DCCBs with the State Co-op Banks on Monday.
Paraphrasing its notification with the words that RBI is doing so due to request from several state governments, the apex bank has made it mandatory on the part of the state govt to make a proposal/request for the amalgamation, meaning thereby co-op banks on their own cannot do so. However, two DCCBs (without the involvement of state co-op bank) can also decide to amalgamate and ask the state govt to put a proposal on their behalf before the RBI.
The notification is a body blow to the efforts of co-operators who organized a national Conclave of DCCBs recently in NCUI in the presence of Union Minister Parshottam Rupala voicing concern about the rising cases of DCCBs amalgamation. More than 165 Co-op Bank
Chairman from 13 States participated. Later on, a resolution was sent to the Finance Minister asking her to hold the amalgamation process till a National Policy on the issue is made.
RBI guidelines stipulate that the state govt has to make a request after conducting a detailed study of the legal framework along with an additional capital infusion strategy, assurance regarding financial support if required, the projected business model with clear profitability and the proposed governance model for the amalgamated bank.
Other conditions enlist the scheme of amalgamation that is approved by the requisite majority of shareholders and such proposals have been examined and recommended by NABARD.
The proposal for amalgamation of DCCBs with the StCB will be examined by the Reserve Bank in consultation with NABARD and the sanction/ approval will be a two-stage process. In the first stage, an ‘in-principle’ approval will be accorded subject to fulfilment of certain conditions, following which the processes for amalgamation may be initiated by all concerned.
After completion of the above processes, NABARD and Reserve Bank may be approached for final approval along with a compliance report. To enable the Reserve Bank to consider the application for sanction, the State Government shall submit the required information and documents to the concerned Regional Office of Reserve Bank and NABARD.
The RBI notification also stipulates that the proposal should be in compliance with the legal requirements and that the State Government shall verify that there are no Court Orders prohibiting or staying the proposal for amalgamation.
Financial parameters of the amalgamated entity based on notionally consolidated latest audited financial statements should be robust. It should have its CRAR above the prescribed regulatory minimum, Gross NPA below 7% and Net NPA below 5% and availability of adequate liquid
assets. Post-amalgamation, it should be a profit making and financially viable entity on a sustained basis.
The scheme of amalgamation shall be presented to the shareholders of the StCB/ DCCBs. A resolution shall be passed by 2/3rd of the majority of the shareholders, both in number and value, present and voting at a General Body Meeting of StCB and each DCCB.
A new Board of the amalgamated bank shall be constituted within three months of amalgamation. The MD/ CEO who is to be appointed should meet the Fit & Proper criteria prescribed by RBI.
In addition to the Board of Directors, a Board of Management (BoM) shall be set up for the State Co-op Bank within three months of amalgamation. For this purpose, the bye-laws of the State Co-op Bank shall be amended for incorporating the provisions relating to guidelines on BoM issued by RBI.
DCCBs which are being amalgamated shall surrender their licences to RBI. The process of surrendering licences shall be completed within three months of amalgamation. The existing branches of the DCCBs shall be converted into branches of the State Co-op Bank.
The assets and liabilities of the transfer DCCBs will be transferred to State Co-op Bank on the date of the amalgamation as advised by Reserve Bank while according final approval for the amalgamation.
