Two months after the Reserve Bank of India gave its nod, Chief Minister Pinarayi Vijayan officially launched the Kerala Bank, the country's first state-owned bank, in Thiruvananthapuram on Friday.
In the presence of hundreds of cooperative sector employees from across Kerala, the Chief Minister also announced the Kerala Bank's first big bonanza. Short-term farm loans of up to Rs 1,500 crore in the next four months, before March 31, 2020, at a lower interest rate.
“The interest on these loans will come down by at least one per cent. This will be a big relief for farmers, and will improve productivity,” the Chief Minister said. Till now, the re-finance obtained by the Kerala State Cooperative Bank (KSCB) at an interest of 4.5 per cent is passed on to the farmer through district cooperative banks (DCBs), which in turn imposes on the farmer an interest rate that is higher than what the apex bank charges them.
Now, with the formation of the Kerala Bank, the DCBs are out of the picture. The apex bank, Kerala Bank, can therefore lend to farmers directly and at the rate the KSCB charged the DCBs or even less.
Gains for and from NRKs
Besides farmers, non-resident Keralites too would gain. “Once the Kerala Bank begins operations in countries where Malayalis have settled in large numbers, it will be easier for them to send money back home. Once a non-resident Malayali sends money through the Kerala Bank route, it will reach the Service Cooperative Bank near his or her home. The SCB can then easily take this money right to the doorstep of the non-resident Malayali's home,” Pinarayi Vijayan said. “The money they send today will reach their home here in one day,” he added.
Kerala Bank, too, has a lot to gain from non-resident Malayalis. “We have still not got the permission to accept NRI deposits. We will get it without doubt. The KSCB itself had already submitted an application before the RBI earlier seeking permission to accept NRI deposits. Now we have revised the application and once again submitted it in the name of Kerala Bank,” the Chief Minister said.
Pinarayi Vijayan said there was a misunderstanding that Kerala Bank would not grant loans to non-banking cooperatives. “There are many societies, like consumer cooperatives, housing and marketing societies that have not been amalgamated with the Kerala Bank. This does not mean that the Bank would not grant them loans. They will enjoy all the benefits they had earlier,” Pinarayi Vijayan said.
The Chief Minister also put forward a new goal. “It is high time we thought of one bank that takes care of the financial needs of one local body. Now we have three or four well-run cooperative banks within a single panchayat. In future, we should think of merging all the banks within a panchayat into one bank,” Pinarayi Vijayan said. He said there was a time when Kerala Bank was thought unthinkable.
Malappuram's dissent
It was just a week ago, on November 29, that the High Court had dismissed petitions challenging merger of district cooperative banks to form the Kerala Bank. When the RBI gave its final nod, it had made it conditional on the High Court verdict in the various cases that have been led against the 14(A) clause inserted in the Kerala Cooperative Societies Act.
For a district cooperative bank to merge with the State Cooperative Bank, the Act had originally insisted on a two-third majority in each DCB. As it turned out, the merger had the consent of two-third members only in seven DCBs.
To get over this hurdle, the LDF government introduced the 14(A) clause that reduced the requirement to a simple majority. As a result, except for the Malappuram DCB, others fell in line.
The High Court has now rejected the petitions against the 14(A) clause. “The Malappuram DCB voted against the merger thinking that the RBI will not give its approval to the Kerala Bank,” cooperation minister Kadakampally Surendran said.
The Chief Minister asked the Malappuram DCB to do a rethink. He also made friendly overtures to the DCB. “Never before have you stood in the way of cooperative reforms. If there is any misunderstanding, you should talk to the cooperation minister. If issues are still not resolved, my door is always open,” he said.
Kerala Bank structure
The proposed Kerala Bank is a two-tier system with the apex Kerala Cooperative Bank at the Centre and the large network primary agricultural credit societies (PACS) functioning as "autonomous nodes" around it. “They will be free to do all that they have been doing,” the cooperation minister said.
While KCB will roll out modern banking services, PACS will continue to serve people independently at the local level. The second tier in the existing three-tier cooperative banking structure in the state, the district cooperative banks, will cease to exist.
The director boards of all the 14 DCBs were dismissed on April 10, 2017. In September, 2016, the Registrar of Cooperatives had frozen fresh recruitments in DCBs, and also prohibited the opening of branches by them.