abhyudaya bank: Maharashtra gains foothold in Gujarat co-op bank sector

Certain provisions stop Gujarat banks from expanding their network and shareholder base

The fall of Madhavpura Mercantile Co-operative Bank (MMCB) in 2001 following the Ketan Parekh securities scam had a cascading effect on the financial health of nearly 60 urban co-operative banks (UCBs) in Gujarat.

Some went in liquidation while many others are struggling to survive. Despite the apex bank's policy of encouraging mergers and acquisitions, most good banks in the state have by and large remained disinterested in taking over of weaker banks. The reason: Strong banks do not want to take the burden of additional financial liabilities, unwanted stakeholders and existing employees.

This gave a much-desired opportunity to the multi-state co-operative banks of Maharashtra to gain a foothold in Gujarat's co-operative banking sector. So far, Maharashtra banks have acquired nearly half a dozen UCBs of Gujarat.

The major banks evincing interest in Gujarat for expansion of their network are Cosmos Bank, Kapol Bank, Abhyudaya Co-operative Bank, Nasik Merchants Bank and Saraswat Bank. The banks fancied them were erstwhile Co-operative Bank of Ahmedabad, Manekchowk Co-operative Bank, People's Co-operative Bank, National Co-operative Bank and the latest being Nutan Sahakari Bank.

Banking sector sources say that certain provisions stop Gujarat-based UCBs from expanding their network and shareholder base. They say that only an urban bank can take over another urban bank. The RBI does not sanction the acquisition of an urban bank by a state co-operative bank.

According to Jyotindra Mehta, chairman of the Gujarat Urban Co-operative Bank Federation, big banks like Cosmos and Abhyudaya are keen to acquire UCBs of Gujarat. “Gujarat is safe and best for expanding banking business after Maharashtra where they have already grown,” he said

National Co-operative Union president Ghanshyam Amin says the state's UCBs are not in favour of taking over weak banks as they do not want to take up financial liabilities and staff of weak banks. “Post merger, they will have to accommodate new shareholders, meaning one more pressure group capable to disturb the voting pattern and ultimate change in power equations,” said Amin.

Amin, who is also a former chairman of the erstwhile Co-operative Bank of Ahmedabad which merged into Cosmos Bank, Pune, said that with such a mindset, even banks with some surplus funds are unwelcome.

“On the other hand, Maharashtra banks got ready branches with existing accounts, which are otherwise hard to come by in the present age of competition. Also, Gujarat is any day a good business destination for the co-operative sector,” he said.

Source: expressindia.com