Kerala HC Makes Way for Constituting State Co-operative Bank

The Kerala High Court on November 29 dismissed as many as 21 petitions challenging the formation of Kerala State Cooperative Bank (Kerala Bank), clearing the way for the state government to realise its long cherished dream of having its own bank.

After the HC order, the state government issued the notification for setting up the bank on Friday evening. Kerala Bank which is set to become the state's largest banking network, will be formed after amalgamating 13 district co-operative banks—except the Malappuram District Co-operative bank—with the Kerala State Cooperative Bank. All but one district cooperative bank had approved the amalgamation scheme proposed by the state government in their respective general body meetings.

“The commissioning of Kerala Bank will kick start huge advancement in terms of Kerala’s socio-economic development apart from strengthening its co-operative sector,” said Chief Minister Pinarayi Vijayan.

With the proposal for bank being given a go-ahead, the Pinarayi Vijayan-led Left Democratic Front (LDF) government in the state has closed in on fulfilling nearly all the promises listed out in the 2016 Assembly election manifesto. The bank had already received financial clearance from the Reserve Bank of India earlier on October 7 which is valid till March 2020.

Read More: RBI’s Final Nod for Kerala Bank Set to Boost Agri Enterprises: LDF Govt

Since the official notification has come, the interim governance committee will take over the administrator governance of district cooperative banks. The committee will monitor the amalgamation ensuring that the transitions which take place are within the set legal framework. 

The Interim Committee consists of Secretary to Government Co-operation Department, Mini Antony; Principle Secretary to Finance of Kerala, Sanjeev Kaushik; and Kerala Bank MD Rani George.

The Minister for State Co-operation and Tourism, Kadakampally Surendran, said that all due processes will be followed for handing over the administration to a democratic governance committee as soon as possible. The interim committee has a tenure of maximum one year. The first post amalgamation general body meeting of the state co-operative bank is scheduled in December 2019. Mandatory amendments to the existing law shall be made during the meeting.

Cooperative banks in the state have been operating in a three-tier system – state cooperative bank, district cooperative banks and then the primary cooperative banks. As the Kerala Bank starts functioning, about 804 branches will be merged as per the guidelines of RBI, with the banking operations reducing to a two-tier system.

The opposition parties have been against the formation of the Bank ever since the announcement was made. Congress leader and Opposition leader Ramesh Chennithala even wrote to RBI governor seeking denial of permission for the bank’s formation. The boards of directors of some co-operative banks under the Congress-led United Democratic Front (UDF) also approached the high court against the formation of Kerala Bank.

The government hopes that the bank would boost the state’s development. In the Budget 2019-20, state finance minister Thomas Isaac had also declared that the proposed Kerala Bank would give strong support to enterprises in the agriculture sector.

Not only that, it is also expected that once the Kerala Bank starts its services, the interest rates of loans will be low and uniform. Earlier, district cooperative banks and state cooperative banks had different interest rates.

At present, state cooperative banks have capital adequacy of Rs 7,000 crore and all the district cooperative banks together have a capital adequacy of Rs 47,047 crore. 

Read More: Kerala Coop Banks to be Exempted From SARFAESI Act: Pinarayi Vijayan