Mint Business News - Official Channel
Banking Regulation Bill tabled in Lok Sabhaby Shreya Nandi
- Law aims to bring cooperative banks under RBI’s regulatory framework
- The proposed bill will empower RBI to create bank merger scheme without moratorium norms
NEW DELHI : Finance minister Nirmala Sitharaman on Monday introduced the Banking Regulation (Amendment) Bill, 2020 in the Lok Sabha, aimed at bringing cooperative banks under the ambit of Reserve Bank of India (RBI) and empowering the central bank to undertake the scheme of bank amalgamation without a moratorium. Once the bill is approved by the Parliament, the RBI’s banking regulations will extend to cooperative banks as well, enhancing its oversight of a sector that has been witness to several scandals in the past. Cooperative banks are currently under the dual control of cooperative societies as well as RBI.
The changes will not affect existing powers of state registrars of co-operative societies. Nor will they apply to primary farm credit societies or cooperative societies, the main business of which is long-term finance for agricultural development.
The amendment allows cooperative banks to raise money via public issues and private placements of equity or preference shares as well as unsecured debentures, with the central’s bank’s nod. Currently, access to capital for cooperative banks is limited. The bill also proposed to empower RBI to create a scheme of amalgamation for a bank without placing it under moratorium, which limits withdrawals by depositors and disrupts the bank’s lending operations.
“Further amendments were proposed to be made in Section 45 of the Act to enable RBI to make a scheme to protect the interests of the public, the banking system, depositors or to secure the banking company’s proper management, without first making an order of moratorium so as to avoid disruptions in the financial system," according to the statement of objects and reasons mentioned in the bill introduced in the Lok Sabha.
The Union cabinet had in June approved an ordinance to bring 1,482 urban and 58 multi-state cooperative banks under the RBI’s supervision to strengthen oversight of the lenders, boost depositors’ confidence and prevent a Punjab and Maharashtra Cooperative (PMC) Bank-like fraud.
The government’s move follows the collapse of PMC Bank, which had allegedly created fictitious accounts to hide over ₹4,355 crore of loans extended to the now-bankrupt Housing Development and Infrastructure Ltd (HDIL). The fraud, which was discovered by RBI in September, 2019 trapped millions of depositors.
In March, finance minister Sitharaman tabled amendments to the Banking Regulation Act, 1949 in the Lok Sabha. However, due to the outbreak of covid-19, the Parliament could not approve the changes. Thereafter, on 26 June, an ordinance was promulgated.
“As the economic situation arising from the covid-19 pandemic had increased the stress in both co-operative banks and banking companies, there was an immediate need for legislation in this regard. As the Parliament was not in session, the Banking Regulation (Amendment) Ordinance, 2020 was promulgated by the President of India," the bill said. The Banking Regulation (Amendment) Bill, 2020 seeks to replace the Banking Regulation (Amendment) Ordinance, 2020.