Following a stay on cancellation of banking licence by Bombay High Court, Pune-based Rupee Cooperative Bank’s administrator will explore various options. These include conversion into a small finance bank (SFB), or merger with another sound urban co-operative bank (UCB).
On August 8, the Reserve Bank of India (RBI) had ordered cancellation of the banking licence of the ailing UCB from September 22. The high court will take up the matter on October 17.
Sudhir Pandit, administrator, Rupee Bank, told Business Standard that the bank was pursuing a proposal to merge with Cosmos Co-operative Bank and also speaking to some private investors (for forming an SFB).
The top priority is the Cosmos Bank proposal. Being local banks, it is compatible culturally for both Rupee and Cosmos.
Officials of Cosmos Bank are likely to discuss a merger proposal with the RBI next week.
While making a plea to RBI to consider the proposal, Pandit said Rupee Bank will ensure that merger does not become a burden for Cosmos Bank.
In August 2021, RBI had declined the joint merger proposal of the Maharashtra State Co-op Bank (MStC) and Rupee Bank.
In December 2021, the country’s largest urban cooperative bank Saraswat Co-op Bank had evinced interest in merger of Rupee Bank with itself.
The Mehsana Urban Co-op Bank had also come up with a merger proposal but that was rejected in January 2022.
Pandit said the losses on the books of Rupee Co-op Bank are around Rs 538 crore. Its liquid investments (in government securities) were Rs 840 crore.
The RBI, in its order dated August 8, 2022, said that it cancelled the banking licence of Rupee Bank since the bank did not have adequate capital and earning prospects.
Deposit Insurance and Credit Guarantee Corporation (DICGC) has already paid about Rs 700 crore to eligible depositors.
The high-value depositors (those with amounts above DICGC limits) have money of around Rs 370 crore in Rupee Bank.
These depositors have shown readiness to convert liabilities worth Rs 300 crore into perpetual non-cumulative preference shares, which are treated as tier I capital. This would reduce the negative net worth to Rs 238 crore, he said.
Pandit said the capital adequacy ratio of Cosmos Bank was comfortable to merge Rupee Bank.
Assuming the merger goes through, the capital adequacy ratio would still remain above minimum regulatory capital norms. Cosmos Bank had a capital adequacy ratio of 13.19 per cent as of March 31, 2022.