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Bill to bring cooperative banks under RBI control gets Lok Sabha nod

In response to the debate on Banking Regulations (Amendment) Bill, Finance Minister Nirmala Sitharaman said that the Bill is aimed at improving governance at cooperative banks and protect depositors' money

twitter-logoBusinessToday.In | September 16, 2020 | Updated 21:04 IST
Bill to bring cooperative banks under RBI control gets Lok Sabha nod

Lok Sabha on Wednesday passed the bill to amend Banking Regulation Act that proposes to bring cooperative banks under the supervision of the Reserve Bank of India. Introduced in the Lower House on Monday, the amendment bill was moved earlier today by Finance Minister Nirmala Sitharaman for further discussion.

The Banking Regulations (Amendment) Bill, 2020 replaces an ordinance promulgated on June 26 to bring cooperative banks under RBI's supervision. Calling the situation at cooperative banks "grave", the Finance Minister said in response to the debate on the Bill that the government was compelled to bring out this ordinance even though the lockdown was in effect. She had further said that the Bill is aimed at improving governance at cooperative banks and protect depositors' money.

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Sitharaman said that this amendment is meant to ensure depositors' safety and not for undermining powers of the Registrar of Cooperative Societies. She informed that gross non-performing assets (NPAs) of cooperative banks increased from 7.27 per cent in March 2019, to over 10 per cent by March 2020.

"Due to the pandemic, the stress in cooperative banks increased and the gross NPA ratio increased from 7.27 per cent in March 2019 to over 10 per cent in March 2020. Therefore it was felt that to protect depositors' interest we should have the ordinance brought in," she said.

This amendment is meant to amend Section 45 of the Banking Regulation Act for making of a scheme of reconstruction or amalgamation of a banking company for protecting the interest of the public, depositors and the banking system and for securing its proper management, even without making an order of moratorium, to avoid disruption of the financial system. Further amendments in sections 3 and 56 extend the provisions applicable to scheduled commercial banks to cooperative banks and bring them within the RBI regulation.

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These amendments will not encompass Primary Agricultural Credit Societies (PACS) or cooperative societies whose primary object and principal business is long-term finance for agricultural development, and which do not use the words "bank", "banker" or "banking". The Banking Regulations (Amendment) Bill, 2020 will apply only to cooperative societies that are engaged in banking, Sitharaman had clarified during the debate.

There are about 1,482 urban cooperative banks and 58 multi-state co-operative banks with a depositors base of about 8.6 crore.

(With PTI inputs)

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