What changed
The Banking Regulation (Amendment) Act, 2020 brought StCBs and DCCBs under RBI's amalgamation sanction from April 1, 2021. RBI issued formal guidelines for the first time, detailing conditions, financial benchmarks, and a two-stage approval process for amalgamation proposals initiated by State Governments.
What it means for you
Banks in the short-term co-operative credit structure can now pursue delayering through amalgamation with clear regulatory benchmarks. Lenders must ensure the amalgamated entity meets CRAR, NPA, and profitability thresholds. The two-stage process requires in-principle approval before proceeding, adding regulatory oversight but providing a structured path.
What you must do
- Review your State Government's proposal readiness including legal framework study and capital infusion strategy.
- Ensure StCB has satisfactory regulatory compliance track record and strong governance practices.
- Prepare notionally consolidated financial statements to verify CRAR, Gross NPA below 7%, and Net NPA below 5%.
- Coordinate with NABARD for examination and recommendation of the proposal.
- Plan shareholder meetings to pass resolution with 2/3rd majority in number and value as per Section 44A.
Who it affects
State Co-operative Banks (StCBs), District Central Co-operative Banks (DCCBs), State Governments contemplating STCCS delayering, NABARD as recommending authority
What are the key financial criteria for amalgamation approval?
The amalgamated entity must have CRAR above the regulatory minimum, Gross NPA below 7%, Net NPA below 5%, and adequate liquid assets. It should be profit-making and financially viable on a sustained basis.
What is the two-stage approval process?
First, RBI grants in-principle approval subject to conditions. After completing required processes, the bank approaches NABARD and RBI for final approval with a compliance report.
Who can initiate an amalgamation proposal?
The State Government must make the proposal after a detailed study of legal framework, capital infusion strategy, financial support assurance, projected business model, and governance model. NABARD must examine and recommend it.