RBI Issues Norms For Merging District Cooperative Banks With State Entities

The Reserve Bank of India has said that it will consider amalgamation of district central cooperative banks with state cooperative banks, which would be subject to various conditions including that a proposal should be made by the concerned state government for it.

The Banking Regulation (Amendment) Act, 2020 has been notified for the state cooperative banks and district central cooperative banks with effect from April 1, 2021. Amalgamation of such banks needs to be sanctioned by the Reserve Bank of India.

The central bank has released the guidelines after a few state governments approached it for amalgamation of district central cooperative banks with state cooperative banks as a two-tier short-term co-operative credit structure.

As per the guidelines, RBI will consider proposals for amalgamation "when the state government of the state makes a proposal to amalgamate one or more district central cooperative bank in the state with the state cooperative bank after conducting a detailed study of the legal framework".

Besides, there should be an additional capital infusion strategy, assurance regarding financial support if required, projected business model with clear profitability and proposed governance model for the amalgamated bank.

The scheme of amalgamation has to be approved by the requisite majority of shareholders. Also, NABARD has to examine and recommend the proposal of the state government.

"The proposal for amalgamation of district central cooperative banks with state cooperative banks will be examined by Reserve Bank in consultation with NABARD and the sanction or approval will be a two-stage process," the guidelines said.

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 first stage, NABARD and RBI may be approached for final approval along with compliance report, as per the guidelines.

The guidelines also said that if as a result of share swap ratio based on net worth, shareholders of some district central cooperative banks cannot be allotted any shares, then the state government should infuse sufficient capital in such lenders to ensure that the shareholders are allotted at least one share each.