Kerala Bank: A Merger of Hopes and Accusations

 Kerala Bank, the first Commercial bank in the Co-operative sector in India, under the control of the State and Co-operatives, is presented as an alternative to the existing banking network that includes 21 public sector banks, one gramin bank, 19 private commercial banks and 2 small finance banks. A Brainchild of the ruling LDF govt., it is all set to become the largest banking network in Kerala.

Formed by the amalgamation of the District Cooperative banks, with the State cooperative bank, it has an altered structure, replacing the 3tier structure of Cooperative banks with a 2tier structure. Launched by the Chief Minister, Pinarayi Vijayan in Thiruvananthapuram on December 6th, 2019, it is not a project that is without challenges.

The Idea of Kerala Bank.

Kerala Bank, "a strong, technologically driven and professionally managed universal bank in the cooperative sector with proper governance and business plan", unlike other commercial ventures, "should be under no compulsion to seek risky sectors that promise high profits or, for instance, lend to corporate companies and park their deposits in share markets, neglecting productive sectors where public benefits are high bit profits are minimal". This ideology that merges socialist and capitalist ideas forms a commercial Bank with a social outlook.

Motives of the Kerala Bank.

1.  Serve PACS {Primary Agricultural Credit Services}
2.  Bank of First Preference for Non Credit to Cooperatives.
3.  Serve as a mainstream bank.
4.  Financial and Assistance services to development projects in the State.
5.  Offer a conduit for the direct transfer of Govt. benefits to the account of rural beneficiaries.
6.  Increase the amount of agricultural loans disbursed by accessing Concessional finance from NABARD.

Features of Kerala Bank.

1. A bank with a local focus, common IT infrastructure, brand identity, retaining its people oriented character.
2. More loans at reduced rates.
3. Not charging the services but only the products .
4. CEO - P.S. Ranjan ( General Manager, Union Bank of India).

Kerala bank will begin to offer standardised services and products from 1st January, 2020. Its employee integration deadline is set at 31st March,2020 and the deadline for the integration of core banking facilities is set for September, 2020.

The How: Procedure of setting up the Kerala Bank.

Kerala Bank was formed by merging the District Cooperative banks with the Kerala State Cooperative bank, thus forming a two tier structure with Kerala Bank head quarters at the apex and the various state wide branches at the second level .

Presently, the District Cooperative banks of 13 districts, with the exception of Malappuram District Cooperative Bank ( with its UDF governance) have been merged to give life to this project.

The merger was made possible through an ordinance - an Amendment to the Kerala Cooperative Societies Act to the effect that the transfer of assets and liabilities of the district banks to KSCB could be done with the support of a simple majority of Board members of DCBs, thus doing away away with the pre-existing 2/3rds majority.

The RBI, in principle, approved of the State Government's proposal to merge the 13 District banks with KSCB, subject to the fulfillment of 19 conditions.

The Why: History behind Kerala Bank.

2 major incidents led to the conceiving and materialising of the idea of Kerala Bank.

 - the Merger of State Bank of Travancore (SBT) with SBI.

- Demonetisation.

SBT, the only large public sector bank with its headquarters in the state was merged with SBI, citing gains and efficiency. This implied that the bank that was once Kerala's own, became the regional office of the biggest bank of the country. SBT's surplus savings that came from the State, became amalgamated into SBI's common pool of resources.

The second factor that contributed to the formation of the Kerala Bank was demonetisation; specifically, the fact that cooperatives were not allowed to exchange old notes due to the perception that they lacked professional management and that they lagged in the adoption of newer technologies and were perceived as holding a lot of black money, looking over the fact that cooperatives held the lion's share of business in the state.

This step gains significance as we delve deeper into to the legacy of Cooperatives, a socialist means to a capital ends.

Cooperatives of Kerala were the backbone of rural credit and played a decisive part in weakening extortionate money lending in rural areas. Kerala's cooperative sector is hailed as the strongest in India and the popular notion is that there is no other state whose cooperative banks were as successful as Kerala's, those that went on become banks and receive large deposits.

The Chief minister,in the inaugural address, quotes " It was the cooperative sector, specially, the service cooperative sector that made banking so popular in Kerala".

Challenges :

Kerala Bank faces two kinds of challenges in particular - Practical and Political.

Practical challenges:

1. Integration of IT platforms of separate banking institutions.
2. HR integration and a possible conflict between "the need for a technology driven, slim bank" and the "need for retaining legacy staff."
3. Bringing all district banks under one license regime in providing core banking facilities and gaining permission for all of them to accept NRI funds.

 Political Challenges

1. Opposition from the UDF that alleges that Kerala bank is a ploy by CPI(M) to gain control of the District cooperative banks that were not under its hold.
2. UDF threat to move Court if RBI gives approval.
3. Kerala bank spells destruction of the Cooperative sector .

These listed challenges may form only a part of the palate and there would be much more that remains unknown. Much of the concerns would die down only after the government has ably proven that it can manage a cooperative institution in a commercial manner and still not succumb to classic capitalistic norms of profit maximising.

Reception 

The government claims that the objective of Kerala Bank is to strengthen the cooperative sector and make it more efficient and competitive, but the opposition alleges that the move would destroy the traditional cooperative sector. Overall reception of Kerala Bank has been fairly positive. It is perceived that this has been favourable for investments, with the major focus on NRIs as investors. The drop in the value of rupee makes India a safe haven in the face of recession.

The NRI factor is a major decision maker in the future of Kerala Bank. This is perceived to be a positive impact as NRI deposits in the state's public sector banks have exceeded Rs 1 lakh crores. However, neither the State nor its people are getting any benefits from this. The case also remains that public sector banks are unwilling to issue loans to returning NRIs. Thus a commercial bank with a cooperative mindset, can, if it chooses to, exploit this situation in its favour.

In conclusion, the Kerala bank, " a large bank that is clearly focused on the state, but run professionally" can scale great heights if it overcomes its political opposition and doesn't stray from its spirit.

References

1. frontline.thehindu.com
2. businessinsider.in
3. economictimes.in
4. keralakaumudi.com