The State Cabinet has given its nod for the amalgamation of the Kerala State Cooperative Bank and the 14 district cooperative banks as a prelude to the formation of Kerala Bank.

With this, the primary cooperative credit societies would take the place of second tier of the cooperative banking system.

The decision has been taken subject to the conditions set by the Reserve Bank of India (RBI).

Cooperation Minister Kadkampally Surendran told reporters after the weekly Cabinet meeting that the district cooperative banks were being merged with the State Cooperative Bank to provide better services to the customers in competition with the new generation banks.

At present, the cooperative banking sector was unable to attract the new generation by offering them all possible services.

Only hitch

Mr. Surendran said the only hitch to the formation of the Kerala Bank was that the director boards of the district cooperative banks would cease to exist. In the past, political leaders who controlled the district cooperative banks were so powerful that they could thwart all attempts at forming Kerala Bank.

The government was now determined to make the proposal a reality. It was also confident that it would be able to convince all sections about the need for Kerala Bank, the Minister said.

‘Drop the move’

Meanwhile, Leader of the Opposition Ramesh Chennithala on Wednesday asked the State government to retract its decision to form Kerala Bank since it would sound the death knell of the cooperative sector.

In a statement here, Mr. Chennithala said that the RBI had given an “in-principle” sanction that carried 19 conditions. Most of these pre-conditions were difficult to fulfil. The State government will have to invest a huge amount to maintain the capital adequacy ratio of the proposed Kerala Bank as per the RBI norms after merger of the cooperative banks.

The decision would also undermine the democratic character of the cooperative sector, particularly the shift from the three-tier banking system to two tier. It would leave a lasting impact on the rural economy since the cooperative movement was its backbone. “The State government should give up its stubbornness and withdraw from its move to set up Kerala Bank,” he said.