UCBs in acquisition mode after curb on branch spread

Urban cooperative banks (UCBs) are looking at acquiring sick peers in to expand their footprint. This consolidation move has been triggered by the Reserve Bank of India's (RBI) decision to not issue fresh branch licenses to co-operative banks.

Saraswat Co-operative Bank, The Shamrao Vithal Co-operative Bank Ltd, Abhudaya Co-operative Bank and Kapol Co-operative Bank Ltd are in the race to acquire troubled Maratha Mandir Co-operative Bank and South Indian Co-operative Bank (SICB) in Mumbai.

The RBI had imposed directive on both SICB and Maratha Mandir Co-operative Bank on account of their deteriorating financial health.

Deepak S Patil, chief executive officer, The Shamrao Vithal Co-operative Bank Ltd, said the RBI's decision is forcing their hand. There are 2,104 cooperative banks in the country. However, a survey undertaken by leading consultants visualise that there is only room for about 200.

Taking over a troubled bank will have a negative impact on the acquiring cooperative bank's balance sheet. At the same time, this will give the acquirer access to new locations and a ready made deposit and advances base, said the chairman of a Gujarat-based co-operative bank.

"Our acquiring Maratha Mandir Co-operative Bank will give us access to ready deposits and enable us extend our branch network by 11 more branches," said Patil.

Currently Shamrao Vithal Co-operative Bank Ltd has 38 branches. The bank has applied to the RBI for nine branch licences, but the regulator is still reviewing the proposal, he added.

At the same time, while healthy cooperative banks are keen to acquire sick banks, they will only do so provided the RBI grants them some concessions.

"We want concessions like amortisation of bad debts over a period of seven years, restriction on withdrawal of deposits specially term deposits for couple of years and realigning the interest rates paid on deposits," said Patil.

Many of the troubled banks offer higher interest rates by as much as 1.5-2 per cent as compared to the more healthy banks, said the general manager-credit, at a Mumbai-centric cooperative bank.

Shamrao Vithal Co-operative Bank had appointed a consultant to conduct a due diligence on the two distressed banks "" Maratha Mandir Co-operative Bank and South Indian Co-operative Bank.

The proposal will be placed at the next board meeting. Once the board approval is received, the management will approach the central bank, said Patil.