Banking
The Reserve Bank of India on Wednesday gave the final nod for the Kerala Bank, one of the major promises in the election manifesto of the LDF.

The Kerala Bank is all set to become a reality. The Reserve Bank of India on Tuesday gave the nod to the Kerala government to set up a bank of its own by merging the district cooperative banks to form a state cooperative bank. The move has the potential to transform the banking sector of the state.

The Kerala Bank will be the largest banking network in the state, the formation of which was one of the major promises in the election manifesto of the Left Democratic Front (LDF).

The district cooperative banks of all the 14 districts in the state, barring the Malappuram District Cooperative Bank, had approved the government's amalgamation scheme.

However, the proposed amalgamation will have to wait for the High Court's order on cases challenging the amendment to Section 14(A) of the Kerala Cooperative Societies Act (to do with transfer of assets and liabilities). The cases in the HC have mostly been filed by cooperative societies affiliated to the Congress and the Indian Union Muslim League. The court had earlier dismissed their plea for staying the bank formation. Now that the RBI has given the nod, it is expected that the court's verdict will be in favour of the government. 

Advantages of Kerala Bank

Kerala Bank is the state’s only own bank since the State Bank of Travancore has ceased to exist. The State Bank of Travancore was headquartered in Thiruvananthapuram and merged with the State Bank of India in March 2017.

The advantage, even in the initial phase for the Kerala Bank, is that as an amalgamation of the district cooperative banks, the investment base will be transferred into the new bank intact. Kerala has one of the most established and strong networks when it comes to cooperative banking systems in the country.

“In the beginning itself, there will be a wide network under Kerala Bank as it would be functioning along with the primary cooperative societies. The cooperative sector in the state has gained a lot of trust and support of the people over the years. People are convinced that there is no risk in investing in Kerala Bank - the deposits of the cooperative banks would come to the Kerala Bank. There is a trust base for the cooperative movement as a whole and its strong client base would also work in favour of the Kerala Bank," Dr KN Harilal, a public finance expert who is also a member of the State Planning Board, tells TNM.

He goes on to add, "Also, once it has become a single bank, the economies of scale will work to our advantage. Multiple bank operations will be done away with. There will be a common management, single software and only one contact to deal with various agencies. Further, issuance of credit or debit cards will become easier and so will the arrangements with other banks.  With a single bank, dealing with the customers will also become much easier."

Kerala had submitted a compliance report to the RBI in March this year based on which the RBI has given the nod for the formation of the bank. As per the conditions stipulated by the RBI, the government should strictly abide by the provisions of the Kerala State Cooperative Society Act apart from ensuring that the capital of the state cooperative bank is strengthened. 

 “The Kerala Bank will also have the advantage of working directly under the monitoring of the RBI,” adds Dr Harilal.

The Kerala government will have to complete the stipulations laid down for the merger and submit a compliance report to the RBI before March 31, 2020.

Professor MS Sri Ram of IIM Bangalore, one of the experts who is part of the Kerala Bank initiative,  says that the idea of an integrated bank that amalgamates all the district cooperative banks under the state cooperative bank, is to make better and consolidated use of resources and provide economies of scale.

“Kerala Bank will be able to provide value added services to the members of primary agricultural cooperatives if executed as envisaged. Since it will be focused on Kerala, it is bound to benefit the state. I was the chair of the committee that laid out the roadmap for the model. So, I believe it is a desirable move, provided the state government follows the spirit of the recommendations. There have been other states that have integrated their banking structure, but that was dictated by a distress. This is the first experiment of a healthy cooperative system going through an integration process,” Professor Sriram tells TNM.

Chief Minister Pinarayi Vijayan expressed pleasure over the RBI giving the nod for the bank, and said that he expects the formation of the Kerala Bank to increase the pace of development in the state.

“The formation of the Kerala Bank will be done in line with the order of the Supreme Court. The RBI has given the nod with certain conditions. The Cooperative Department will take action to comply with the conditions,” he said. 

Opposition slams move

However, the Congress-led opposition in the state has slammed the formation of the bank. KPCC President Mullappally Ramachandran in a statement on Thursday claimed that the decision challenges Constitutional principles. He also urged those 'who have commitment to the cooperative sector' to oppose the move. 

He alleged that from the beginning, the government had been playing a 'hide-and-seek game' in forming the bank and that the only intention behind this is to use the investments which will be transferred to the Kerala Bank to tide over the financial crisis of the government. 

Minister for Cooperation Kadakampally Surendran countered the allegation by stating that the aim is to have a bank that doesn't exploit the people. He also said that through Kerala Bank, more farm loans can be provided and that Kerala Bank, unlike the district cooperative banks, can receive investment from non-resident Keralites. NRIs send an amount to the tune of Rs 1.5 lakh crore per year to the state.

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