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Amalgamation of District Central Co-operative Banks with the State Co-operative Bank

Summary:
RBI has issued guidelines for amalgamating District Central Co-operative Banks (DCCBs) with the State Co-operative Bank (StCB): The Banking Regulation (Amendment) Act, 2020 (39 of 2020) has been notified for the State Co-operative Banks (StCBs) and District Central Co-operative Banks (DCCBs) with effect from, April 1, 2021 vide Notification dated December 23, 2020 issued by Government of India. With the issue of the notification, the amalgamations of the above banks have to be sanctioned by Reserve Bank of India in terms of the provisions of the Section 44-A read with Section 56 of the Banking Regulation Act, 1949. In recent past, a few State Governments approached RBI for amalgamation of DCCBs with the StCB as a two-tier Short-term Co-operative Credit Structure (STCCS). In order to

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RBI has issued guidelines for amalgamating District Central Co-operative Banks (DCCBs) with the State Co-operative Bank (StCB):

The Banking Regulation (Amendment) Act, 2020 (39 of 2020) has been notified for the State Co-operative Banks (StCBs) and District Central Co-operative Banks (DCCBs) with effect from, April 1, 2021 vide Notification dated December 23, 2020 issued by Government of India. With the issue of the notification, the amalgamations of the above banks have to be sanctioned by Reserve Bank of India in terms of the provisions of the Section 44-A read with Section 56 of the Banking Regulation Act, 1949.

In recent past, a few State Governments approached RBI for amalgamation of DCCBs with the StCB as a two-tier Short-term Co-operative Credit Structure (STCCS). In order to help the States contemplating delayering their STCCS, following guidelines are being issued to bring the requirements and indicative benchmarks for the amalgamation of DCCBs with the StCB to the notice of all stakeholders. These guidelines will also apply for amalgamation of one or more DCCBs in a State with the StCB or amalgamation of one DCCB with another.

2. The Reserve Bank of India will consider proposals for amalgamation if the following conditions are fulfilled:

    1. When the State Government of the State makes a proposal to amalgamate one or more DCCB/s in the State with the StCB after conducting a detailed study of the legal framework along with additional capital infusion strategy, assurance regarding financial support if required, projected business model with clear profitability and proposed governance model for the amalgamated bank.
    2. When the scheme of amalgamation is approved by the requisite majority of shareholders in accordance with the provisions of Section 44A read with Section 56 of the Banking Regulation Act, 1949.
    3. When such proposal of the State Government has been examined and recommended by NABARD.

Regulatory criteria:

4. The basic regulatory criteria for amalgamation shall be as under:

    1. The proposal should be in compliance with the legal requirements, past orders/ rulings of the Courts, if any. The State Government shall verify that there are no Court Orders prohibiting or staying the proposal for amalgamation.
    2. 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 sustained basis.
    3. The StCB should have a satisfactory track record of regulatory and supervisory compliance.
    4. The StCB should have strong governance/ management practices.

This will be interesting to watch..

Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

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