“For the past two years, depositors in cooperative banks and small banks are facing problems. We are trying to introduce this amendment to protect depositors,” Finance Minister Nirmala Sitharaman said at Lok Sabha on Thursday.
Commenting on the new bill, Mandar Agashe, founder, managing director and vice president of Sarvatra Technologies, said: “RBI can now leverage the existing and deeply rooted network of cooperative banks rather than create a new one that will help offer services to the last mile in an efficient manner. “
The bill will replace the 2020 Banking Regulation (Amendment) Ordinance. In June, the union cabinet approved the ordinance to bring 1,482 urban cooperative banks and 58 multi-state banks under the supervision of the central bank.
Everything you need to know about the new Banking Regulation (Amendment) Bill 2020:
1) The bill allows the central bank to initiate a scheme for the reconstruction or merger of a bank without placing it in moratorium.
2) If the central bank imposes a moratorium on a bank, the lender cannot grant loans or make investments in any credit instrument during the term of the moratorium, according to the bill.
3) Cooperative banks may issue shares of capital stock, preferential or special shares at nominal value or with a premium to their members, or to any other person residing within their area of operations. Banks may also issue unsecured debentures or bonds or similar securities with a maturity of ten years or more to such persons. However, a prior approval from RBI is required for such issuance.
4) No person will have the right to demand payment for the delivery of the shares issued by a cooperative bank, says the bill.
5) The bill mentions that the RBI can exempt a cooperative bank or a class of cooperative banks from certain provisions of the Act by notice. These provisions are related to employment, the qualification of the board of directors and the appointment of a president.
6) RBI can replace the board of directors of a multi-state cooperative bank for up to five years under certain conditions. These conditions include cases where it is in the public interest for RBI to replace the Board and protect depositors.
7) The bill discards the provision of the Banking Regulation Act of 1949 that cooperative banks cannot open a new place of business or change the location of banks outside of the village, town or city in which it is located currently without permission from RBI.
8) The changes will not affect the existing powers of the state registrars of cooperative societies under state law. “This bill does not regulate cooperative banks. The amendment is not for the central government to take over cooperative banks,” Sitharaman said.
Exclusion: The 2020 Banking Regulation Amendment Bill will not apply to a) Primary agricultural credit societies, b) Cooperative societies whose main business is long-term financing for agricultural development.
These two companies must not: a) use the term “bank”, “banker” or “banking” on their behalf or in connection with their business, b) act as a check clearing entity.
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