Saraswat Co-op Bank seeks to become a private bank

To overcome the inherent restrictions in the co-operative banking model on raising capital, the country's largest co-operative bank is mulling the option of converting into a private sector bank.

The Mumbai-headquartered Saraswat Co-operative Bank has apparently started working towards this end. A bigger play in the banking landscape by seeking the Reserve Bank of India's permission to spread its wings across the country – currently, it has presence in Maharashtra, Gujarat, Madhya Pradesh, Karnataka, Goa and Delhi – and giving

stock options to employees are in the works.

At present, co-operative banks can strengthen their core capital only by issuing shares at face value, ranging from Rs 10 to Rs 100, and plough back of profits. The capital market is off-limits for them. This restriction on bolstering core capital is proving to be a stumbling block for growing assets.

The only urban co-operative bank that has converted (in 1995) into a private sector bank so far is the Development Co-operative Bank. This bank was re-christened as Development Credit Bank.

Future plans

In the run-up to the conversion into a private sector bank, Saraswat Co-operative Bank has set its sights on achieving critical mass by doubling its balance sheet and branch network to Rs 50,000 crore and 400 respectively in five years, said a top official.

“We want to do as much business in the next five years as we did in the last 92 years…….Given that co-operative banks are faced with restrictions on raising capital, we plan to seek shareholders' vote on the option of converting the bank into a private sector bank a couple of years down the line,” said Mr Eknath K. Thakur, Chairman, Saraswat Co-operative Bank.

Pending the conversion, Saraswat is banking on amendments to the Multi-State Co-operative Societies Act, 2002, so that it can issue shares at book value (i.e. at a premium) instead of just at face value to augment its capital base.

On Employee Stock Option Plan, Mr Thakur said employees will get stock options once the RBI gives approval to the trust formed by them.
Courtesy : The Hindu Business Line (K.Ramkumar)