Punjab Government Plans Merger of Cooperative Banks

The Punjab government is planning to merge district central cooperative banks with the Punjab State Cooperative Bank (PSCB). This strategy aims to improve capital adequacy, enhance competitiveness against large commercial banks, and cut down on unnecessary administrative costs.

A team from the finance and cooperative departments, led by Finance Minister Harpal Cheema, recently met with senior bank executives in Mumbai over two days. They outlined two proposals: one to merge all 20 district central cooperative banks (DCCBs) into PSCB, and another to merge 16 DCCBs, leaving out Jalandhar, Kapurthala, Nawanshahr, and Hoshiarpur.

According to sources, due to ongoing legal disputes involving the four DCCBs, the Reserve Bank of India (RBI) is likely to consider merging just 16 of them. The general body of these banks has reportedly passed resolutions favoring voluntary merger with PSCB. An official noted that this could lead to stronger capital and improved profitability, enabling the creation of larger banks. He added that the state has to routinely inject funds into these struggling banks whenever their capital to risk-weighted assets ratio (CRAR) dips below 9 percent, which is crucial for covering potential loan defaults and losses.

This merger initiative stems from a decision made during the budget discussions by the previous Congress government in 2017. Subsequent stakeholder meetings reached a consensus that such a merger would benefit farmers with loans, the cooperative credit framework, and ensure the long-term sustainability of cooperative banks. The Council of Ministers formally approved the proposal in December 2018.

The RBI granted ‘in-principle approval’ on December 5, 2020, with the condition that all DCCBs obtain resolutions for voluntary mergers in their general meetings. While 16 DCCBs were on board, Jalandhar, Kapurthala, Hoshiarpur, and Nawanshahr did not approve the plan. Following this, the Registrar of Cooperative Societies mandated a merger of these four under the Punjab Cooperative Societies Act of 1961. However, the banks contested this order, and by December 2021, the central bank indicated that moving forward with the merger wasn’t feasible.

With the AAP government taking office in 2022, the state sought the RBI’s reconsideration of this decision. In 2023, Chief Minister Bhagwant Mann personally approached the Union Finance Minister and the RBI Governor to expedite the proposal.

A senior officer remarked, “Traditional cooperative principles promoted district-level banks to encourage local involvement. While this three-tier system has been effective historically, the current banking landscape makes it less practical. With 20 distinct DCCBs in Punjab, the system has become fragmented, financially vulnerable, and overly complicated.”