The fate of 42 co-operative banks in Gujarat hangs in balance as the Reserve Bank of India is yet grant licences to these banks to carry out operations.

Though registered under the Co-operative Societies Act of the respective states, the banking-related activities of co-operative banks are also regulated by the RBI. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.

At least a dozen banks had applied for licences nearly 20 years back, while 10 other banks' applications are pending approval with the central bank since the last 10 years.

Attempts to contact the regional director of RBI proved futile. A senior RBI official, however, said, "Their applications are pending. They have been given in-principle approval. The banks are allowed to carry out operations once they file their applications with us and we review their performance every two years. They are allowed to continue business till we reject their applications."

But this regulatory approach is causing a lot of heartburn among depositors. A month back when the RBI rejected the application of Jamnagar Nagrik Sahakari Bank, more than four lakh (400,000) depositors got panicky following which government officials assured them that the minister of co-operatives, Bhupendrasinh Chudasma, will hold talks with RBI officials.

"I had a recent meeting with RBI officials in Mumbai and requested them to look into the matter," Chudasma said.

"It may happen with any of these 42 banks and the depositors, most of whom do not know that their banks do not have a license, may land up in major mess. Once the application is rejected, the banks will need to withdraw from the clearing house of the RBI and the depositors will be denied all the facilities of a bank," said Prakash Gujar, president of the All Gujarat Co-Op Banks Depositors' Association.

"For quite sometime we have been demanding a quick decision on this matter from the RBI. At least for the sake of depositors, RBI should clear pending applications: either approve or reject them," the chairman of a Saurashtra-based co-operative bank said.

According to him, at least five more banks from the region are facing a similar problem. "There may be another 15-20 such banks in south Gujarat and half-a-dozen banks in Ahmedabad which are awaiting approval from the RBI since more than 10 years," he added.

As per the Banking Regulations Act, to start a co-operative bank, 15 promoters without any criminal records, involvement with any other co-operatives, together may apply to the RBI for a license. In turn, the RBI will ask them to start functioning within three months from its approval and raise Rs 2 crore (Rs 20 million) as share capital. Once the RBI clears the application, the bank becomes a member of the clearing house.

"We have been running our co-operative as a bank since the last 20 years and have more than 20,000 depositors. If tomorrow RBI rejects our application, we will be suspended from the clearing house. Our depositors will not be able to issue cheques, and their money will also not be insured," said a senior official of a co-operative bank in Ahmedabad.

According to him, once in every two years, RBI officials visit his bank to inspect documents but never bother to confirm the status of the application.

"If we ask them, we are said that there is some technical problem with our bank and so RBI can't issue approval. They never make it clear what are the problems and what we need to do about it," the official added.