As per the existing policy, neither the RBI nor the state government are empowered to give financial support for writing off the losses of a sick bank, at the time of a merger.
However, Saraswat Co-operative Bank which has shown interest in taking over Mumbai based sick bank has asked for financial support to conclude the deal.
This comes in wake of the fact that the banking regulator is desperately seeking a solution for the revival of the sick bank, as it is apparently against any move to cancel the licence of the bank. This is because, the beleaguered bank has several large depositors holding deposits in excess of Rs 1 lakh in the bank.
Of the Rs 230 crore deposits in the South Indian Co-operative Bank, about Rs 90 crore worth are above Rs 1 lakh accounts. Cancellation of the banks licence would lead to liquidation of the bank, at which point, the DICGC would have re-imburse depositors holding deposits of up to Rs 1 lakh in the bank. About 33% of the depositors are large depositors, who would not get a penny. Hence, in the interest of these depositors, the RBI is trying to either revive the bank or merge it with a stronger bank, said sources.