On May 24, 2021, the Reserve Bank of India(RBI) notified the guidelines for the Amalgamation of one or more District Central Co-operative Banks (DCCBs) in a State with State Co-operative Bank (StCB) or amalgamation of one DCCB with another.
- RBI issued the guidelines as some of the State governments approached RBI for amalgamation of DCCBs with the StCB as a two-tier Short-term Co-operative Credit Structure (STCCS).
Background:
i.On December 23, 2020, the Government of India has notified the Banking Regulation(BR) (Amendment) Act, 2020 (39 of 2020) for the DCCBs and StCBs with effect April 1, 2021, onwards.
ii.As per the notification, the amalgamation of the DCCBs and StCB has to be sanctioned by RBI in terms of the provisions of Section 44-A read with Section 56 of the BR Act, 1949.
Conditions for Amalgamation:
i.The scheme of amalgamation has to be approved by the requisite majority of shareholders following the provisions of Section 44A read with Section 56 of the BR Act, 1949.
ii.The proposal of the State Government for amalgamation has to be examined and recommended by National Bank for Agriculture and Rural Development (NABARD).
iii.Financial Parameter: The entities should have – Capital to Risk Weighted Assets Ratio (CRAR) above the prescribed regulatory minimum, Gross non-performing assets (NPAs) below 7 percent, Net NPA below 5 percent, and adequate liquid assets.
Two- Stage process examination:
The proposal for amalgamation of DCCBs with the StCB will be examined by RBI in consultation with NABARD and the sanction/ approval will be a two-stage process as follows.
- 1st stage: In this stage, an in-principle approval will be granted subject to fulfilment of certain conditions.
- 2nd stage: At this stage, NABARD and RBI will provide the final approval along with a compliance report.
Considerations of ‘in-principle’ Approval:
i.Post-amalgamation, StCBs are required to adhere to the CRAR norms prescribed by RBI from time to time. (The shortfall in capital, if required, for meeting CRAR requirement shall be met by State Government)
ii.In case the StCB is not eligible to continue with certain lines of business, it shall be phased out within 1 year of grant of final approval.
iii.Existing branches of the DCCBs shall be converted into branches of the StCB and will come under the purview of Section 23 of the BR Act, 1949 (AACS).
iv.A new Board of the amalgamated bank shall be constituted within 3 months of amalgamation.
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About Reserve Bank of India(RBI):
Establishment – 1st April 1935
Headquarters – Mumbai, Maharashtra
Governor – Shaktikanta Das
Deputy Governors – Mahesh Kumar Jain, Michael Debabrata Patra, and M Rajeshwar Rao, T. Rabi Sankar
