To strengthen the state’s rural credit system and facilitate famers taking credit from the cooperative banks, Punjab Cabinet okayed the merger of 20 District Central Cooperative Banks (DCCBs) with the Punjab State Cooperative Bank (PSCB).

Facts :

• The Punjab Cabinet approved the merger of 20 District Central Cooperative Banks (DCCBs) with the Punjab State Cooperative Bank (PSCB) to strengthen the state's rural credit system and facilitate farmers taking credit from cooperative banks.
• With the Cabinet giving the green signal to change the state's three-tier cooperative credit structure into two-tier, by amalgamating the DCCBs with the PSCB, the latter has now become a larger entity bank.
• The decision had been taken in view of the Reserve Bank of India's (RBI) guidelines, which mandate that all DCCBs should have a minimum capital adequacy ratio of 9 per cent.
• Although at present the DCCBs are adhering to the required Capital to Risk Weighted Assets Ratio (CRAR) of 9 per cent, there is hardly any space for the majority of these DCCBs to enhance their business and to increase their profitability.
• Without further capital induction the CRAR stipulation given by the RBI cannot be met. Hence, the Cooperative Credit Structure in the State is facing severe hardships.
• To meet the CRAR stipulation mandated by RBI for the cooperative banks, the state government had to infuse capital amounting to Rs 307 crore in the past.
• After amalgamation, the single entity will have capital adequacy in the range of 13-14 per cent, allowing cooperative banks to increase their business while meeting RBI's stipulation of capital adequacy.

Analysis :

• There are around nine lakh farmers who are holding Kisan Credit Cards of the Cooperative Banks in the State and are dependent on credit in the prevalent Cooperative Structure.
• With this merger, the cooperative bank in the state will emerge as a financially and structurally stronger entity.
• This merger has paved the way for PSCB to play a greater role in the area of rural credit.
• Now, this would increase the profitability of the Bank and help it to adopt the latest technology and give better delivery services to its customers as well as the farmers of the State.
• Notably, the amalgamation of the DCCBs with the Apex Bank would be largely beneficial for ensuring maintenance of Capital to Risk Weighted Assets Ratio (CRAR) on regular basis, enhance the profitability of the Cooperative Banking Structure in the state, increase regular flow of credit to the farmers, curtail the cost of computerisation and other administrative expenses besides better tax compliance and human resources management.