Public sector banks have been directed by the RBI as well as Finance Ministry to consider the takeover of the struggling urban cooperative banks after all efforts of consolidation among big lenders resulted in a null.

According to a finance ministry, both Government as well as the banking regulator are keen on the merger of these urban co-ops with public sector lenders.

Bank of Baroda has shown interest in taking over Mumbai based Memon Cooperative Bank. The bank has already sent a proposal in this regard to the finance ministry.

"Other banks are also expected to start their due-diligence process and identify key targets," the official said. In all there are 53 scheduled cooperative banks in India.

The interest of banks in these cooperative units despite their weak financial status lies in the local presence these co-ops have which would aid in their aim of financial inclusion.

Memon Co-operative Bank has 18 branches spread across Gujarat and Maharashtra. "The bank has a networth of Rs 244 crore. We're sure it will add to our strength in these two states," said a senior Bank of Baroda official.

RBI has indicated that the takeover of these units would take place by joint approval of RBI and the State Government as these banks are jointly regulated by them.