NEW DELHI: Finance Minister Nirmala Sitharaman introduced the 2020 Banking Regulation Bill (Amendment) at the Lok Sabha on Monday. The law seeks to protect the interests of depositors by placing cooperative banks under the regulatory framework of the Reserve Bank of India (RBI).
With the amendments, RBI will be able to undertake a bank merger scheme without placing it in default. Previously, if a bank was in default, it not only limited depositor withdrawals, but also disrupted a bank’s loan operations.
“Further amendments were proposed to section 45 of the Act to allow the Reserve Bank of India to draw up a plan to protect the interests of the public, the banking system, the depositors or to ensure the proper management of the banking company. , without first making a moratorium order to avoid disturbances in the financial system ”, according to the statement of objects and reasons mentioned in the bill presented in the Lok Sabha.
Under the bill, the central bank’s banking regulations will also apply to cooperative banks, which is expected to improve supervision of the cooperative banking sector, which has seen many scandals in the past. Cooperative banks have been under the dual control of cooperative societies and the RBI.
However, the changes will not affect the existing powers of the cooperative partnership state registrars under state law. The changes will also not apply to primary agricultural credit societies or cooperative societies, whose main activity is long-term financing for agricultural development.
With the amendment, cooperative banks will be able to raise money through public issuance and private placement, of shares or preferred shares, as well as unsecured obligations, with the approval of the central bank. Currently, access to capital from cooperative banks is limited.
In June, the union cabinet passed the ordinance to bring 1,482 urban cooperative banks and 58 multi-state banks under the supervision of the RBI to strengthen supervision of lenders, increase depositors’ confidence and prevent a Punjab Maharashtra Cooperative (PMC). like a fraud.
The government move follows the collapse of PMC Bank, which had allegedly created fictitious accounts to hide. ₹Rs 4,355 crore of loans granted 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, the finance minister Nirmala Sitharaman presented the amendments to the Banking Regulation Law of 1949 at the Lok Sabha. However, due to the outbreak of covid-19, Parliament was unable to approve the changes. Subsequently, on June 26, an ordinance was enacted.
“Given that the economic situation derived from the COVID-19 pandemic had increased the tension in both cooperative banks and banking companies, there was an immediate need for legislation in this regard. As Parliament was not in session, the 2020 Banking Regulation (Amendment) Ordinance was promulgated by the President of India, “the bill read. The 2020 Banking Regulation (Amendment) Bill seeks to replace the Ordinance 2020 banking regulation (amendment).
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