IIM-A to pen revival plan for co-op banks

What ails Gujarat's co-operative banking sector and how can it be saved from collapsing? The Indian Institute of Management, Ahmedabad (IIM-A) could have the answers.

The Gujarat Urban Co-operative Banks Federation (GUCBF), an umbrella organisation of co-operative banks across the state, has asked the IIM-A to prepare a report on the revival and restructuring of Urban Co-operative Banks (UCBs) in the state.

IIM-A will charge a lump sum fee of Rs one lakh for the study, which is to be completed within a time frame of between six and eight weeks.

Shailesh Gandhi of IIM-A will carry out the study for the GUCBF. The study is likely to address important issues like incentives banks will get if they opt for mergers and the crucial issue of how much capital will be required to be pumped in to revitalise the ailing co-operative banking sector.

Director of IIMA, Bakul Dholakia, said: "We will contribute in the process of overall restructuring of the co-operative banking sector in Gujarat and try to find out a solution to the problem. We are also trying to explore alternative means to improve the financial health of the cooperative banking sector in Gujarat and all concerned parties like Government of Gujarat, Reserve Bank of India, Federation and co-operative banks need to be brought for a discussion once we explore and find out the survival strategy for the urban cooperative banks in Gujarat which are presently ailing."

The scope of the study will include understanding the framework of dual control exercised over UCBs in Gujarat, to carry out a Strength, Weakness, Opportunities and Threats (SWOT) analysis of the urban co-operative banking sector in Gujarat. The scope will also include identifying environmental factors within which UCBs would require to operate, particularly the banking technology, regulatory powers of the state and RBI, and competition.

Based on this scope of work, the IIM-A will provide recommendations for the revival of the sector. The recommendations will also highlight issues like incentives for mergers, governance, impact on the staff of the banks, fund requirements including recapitalisation and the like. The IIM-A study is also expected to suggest required changes in the existing laws and statutes to facilitate implementation of the recommendations for reviving the sector.

The IIM-A team will visit co-operative banks across the state to observe their actual operations, will interact with depositors of the banks, borrowers and also board members of the banks. With the GUCBF as the co-ordinating agency, the IIM-A team will interview several players in the sector as part of the study.

Sources in the federation told Business Standard that while the sum of Rs one lakh is a minor amount, several strong banks have come forward voluntarily, to bear the expenses of the study. "The Federation, in association with various constituent federations, will bear this cost," said a source in the GUCBF.

Although Gujarat ranks second in the country as far as spread of co-operative banking is concerned, its co-operative banking sector is passing through one of its worst crisis. Second after Maharashtra in spread of co-operative banking in the country, Gujarat's co-operative banking sector has taken a beating in the recent past, primarily because of mismanagement of the banks.

Of the total 358 co-operative banks that operate in the state, eight are multi state co-operative banks, which either have depositors and loanees from outside the state or regular branches outside the state.

However as many as 84 banks today have been declared as weak and have been asked to reduce their non performing assets by increasing fresh deposits and also speeding up recovery procedures.

GUCBF president Dollar Kotecha, when contacted, said, "Yes, we have asked the IIM-A to prepare a study for the co-operative banking sector of Gujarat. We look forward to the study to provide the roadmap ahead for revitalising the sector in Gujarat." As many as 310 urban co-operative banks are members of the GUCBF.

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The SWOT blueprint

• Gujarat Urban Co-operative Banks Federation urged IIM-A to help revive UCBs in the state
• IIM-A will charge Rs 1 lakh for the study, which is to be completed within eight weeks.
• The study will address issues like incentives for bank mergers and how much capital will be required to be pumped in to revitalise the ailing co-operative banking sector.