Thiruvananthapuram, Kerala: The Kerala government is planning to restore district cooperative banks in the state and will inform the Supreme Court that it favours their revival, a move that could have significant implications for the future of Kerala Bank.

The government will file an affidavit revising the previous administration’s stand in a case concerning the forced merger of the Malappuram District Cooperative Bank with Kerala Bank. The affidavit will state that the government intends to repeal the legislative amendment introduced by the previous Left government and bring in new provisions to facilitate the restoration of district cooperative banks.

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The Left government had merged district cooperative banks with the Kerala State Cooperative Bank to form Kerala Bank. Under the original arrangement, a merger required the approval of a majority of members at a bank’s general body meeting.

The Malappuram District Cooperative Bank, where the United Democratic Front (UDF) held a majority, did not approve the merger. The government subsequently amended the law to empower the Registrar of Cooperative Societies to carry out a compulsory merger.

The Malappuram bank was merged with Kerala Bank under the amended provision. A petition challenging the merger is now before the Supreme Court. The Reserve Bank of India (RBI) has also opposed the merger.

Although the case concerns only the Malappuram District Cooperative Bank, the government’s revised position could have wider implications for Kerala Bank.

One possibility is that Kerala Bank could revert to its earlier structure as the state cooperative bank, with district cooperative banks functioning separately.

The Left currently controls Kerala Bank’s administration. The government’s plans have also raised questions about whether it will initiate steps to change the bank’s existing administrative structure.

What the Reserve Bank of India says

The RBI grants banking licences under Section 22 of the Banking Regulation Act, subject to the prescribed conditions and norms.

Following a 2020 amendment, provisions governing voluntary and compulsory mergers were extended to cooperative banks as well. The Union government issued a notification to this effect on December 23, 2020.

According to the RBI, the merger of the Malappuram District Cooperative Bank must comply with Sections 44A and 45 of the Banking Regulation Act.

The central bank has also argued that the amendment to Section 74(H) of the Kerala Cooperative Societies Act is contrary to Section 2(gg)(i) of the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act and goes against the spirit of Section 2(gg) of the legislation.