Banking Regulation (Amendment) Bill passed in Lok Sabha to subject cooperative banks to RBI

“We are trying to make this amendment to protect depositors. As in some unfortunate situations in banks, depositors are strained,” Finance Minister Nirmala Sitharaman told Lok Sabha on Wednesday.

“For the past two years, depositors of cooperative banks and small banks have been facing problems. We are trying to make this amendment in order to protect depositors. solving the problem seems to consume all the time, ”added the finance minister.

The bill was first introduced in March during the budget session. However, it could not be adopted due to the COVID-19 pandemic. In June, the union cabinet approved the ordinance to place 1,482 urban cooperative banks and 58 multi-state cooperative banks under central bank supervision.

“Due to the pandemic, stress in cooperative banks has increased and the gross NPA ratio has increased from 7.27% in March 2019 to over 10% in March 2020. Therefore, it has been estimated that to protect interests of depositors, we should adopt the ordinance, “she added.

“This bill does not regulate cooperative banks. The amendment is not for the central government to take over cooperative banks,” Sitharaman said.

With the changes, RBI will be able to undertake a proposed bank merger without placing it under moratorium. Prior to this amendment, if a lender was subject to the moratorium, it not only capped depositors’ withdrawals, but also prohibited lending operations from a bank.

Few other changes have been proposed under Article 45 of the law that will help the central bank to develop a mechanism to ensure the interest of the public, the banking system, account holders in the proper management of the bank. and the banking company, without disrupting banking functions. However, the changes will not affect the existing powers of state registrars of cooperative societies under state laws.

In addition, the amendments to Sections 3 and 56 extend the provisions applicable to listed commercial banks to cooperative banks and integrate them into central bank regulation.

The changes do not apply to primary agricultural credit societies (PACS) or cooperative societies whose main object and main activity is the long-term financing of agricultural development and which do not use the term “bank”. , “Banker” or “bank”.

Commenting on the bill, Divakar Vijayasarathy, Founder and Managing Partner, DVS Advisors LLP, said: “It strikes the right chord and has given a mechanism to restructure these banks and also dramatically improves their regulatory oversight by a competent and efficient regulator, the RBI.

“This decision should certainly improve confidence in cooperative banks and the interests of all stakeholders would be protected in the long term,” he added.