RBI directive on restructuring of UCBs post mergers likely to attract buyers

The RBI circular issued in January this year was to ensure proper implementation of the reconstruction scheme,including recovery of non-performing assets. However,as the bank directive on representatives made the process cumbersome for acquirers,it has now been decided to dispense with this pre-requisite while considering financial restructuring proposals of UCBs.

Accordingly,the management aspects of the UCBs will now be considered on a case-to-case basis while working on their financial restructuring proposals. The step has been taken in view of hesitance found on the part of prospective acquirers,said sources.

The earlier guidelines by the bank had been formulated to facilitate smooth process of mergers and acquisitions of UCBs. One of those guidelines had made it requisite for an acquirer bank to protect the entire deposits of all the depositors of the acquired bank on its own or with the financial support from the state government. This was made mandatory even if the net worth of the acquired bank was negative.

The guidelines had set in motion the process of voluntary mergers through a non-disruptive exit route for non-viable UCBs. However,it was observed that because of a large-scale erosion of deposits,even financially strong banks were unwilling to acquire weak banks. In such situations,restructuring of the liabilities of the weak UCBs was found a viable proposition.

It was in this context that the management of the acquired banks were prescribed to be handed over to Board of Administrators for proper implementation of restructuring. But now it has been done away with.

National Co-operative Union president Ghanshyam Amin has welcomed the move,saying the only managerial skills do not run banks if money is not available. Banks run on liquidity,he said.

Amin said one of the main reasons of the slide in the rate of mergers and acquisitions of weak banks was the Income Tax Department’s move to bring UCBs under tax net. Earlier,strong banks would takeover loss-making banks and adjust the profits against the losses of the banks so acquired. But the I-T department move has made that attraction disappear,he said.