Kannur: The Reserve Bank of India (RBI) has endorsed the formation of the Kerala Bank under the state government. The RBI, after discussions that stretched for two years, has approved the merger of 14 district cooperative banks in the state into a single entity, the Kerala State Co-Operative Bank or Kerala Bank. The state government will issue an ordinance in this regard soon.

The ordinance is aimed at bypassing roadblocks that are feared to come up in getting the merger of the district banks approved.

The effort to obtain a mandatory two-third majority approval at co-op bank general body meetings for the merger might meet with resistance, as the opposition United Democratic Front holds the majority in some of the district banks.

It will take several months to implement the conditional RBI clearance.

The 14 district banks, their 804 branches and the 20 branches of the state Co-Operative Bank will now be part of the Kerala Bank and the district co-operative banks will cease to exist.

The 14 district cooperative banks in the state handle Rs 1 lakh crore transactions now and have a total investment of Rs 70,000 crores.

The balance after loans and statutory reserve is over Rs 20,000 crores.

The district banks, which earn a profit, are being merged into the state cooperative bank that is running at a loss.

The RBI board of directors had ratified the formation of Kerala Bank at a sitting two days ago, but the state government has been keeping it under wraps as several banks are holding their general body meetings.

The idea was to evade objections that could come up at such gatherings. Cases are also pending in courts against the formation of the bank.

The government claimed that the idea of the Kerala Bank is to ensure a modern banking system at the co-operative banks. However, the opposition alleges that the real motive is to utilise the Rs 70,000-crore deposits held by the district and state co-operative banks for the interests of the government.

As per rules, district bank governing bodies has to clear loans from district banks. But once the Kerala Bank is set up, the government can deal with it directly.

Nobody else need to approve loans for development plans or for people in whom the government is interested.

The Kerala Bank governing body will comprise members elected from the 1,640 Primary Agricultural Credit Socities (PACS) in the state. As of now, 65% of the agri-credit societies are under CPM control.