NEW DELHI: In order to protect the interests of depositors, the Lok Sabha on Wednesday passed an amendment to the Banking Regulation Act to place cooperative banks under the supervision of the RBI.
The Banking Regulation (Amendment) Bill, 2020 replaces an ordinance promulgated on June 26.
The bill, which comes in the context of the PMC Bank scam, aims to strengthen cooperative banks by increasing their professionalism, enabling access to capital, improving governance and ensuring a healthy bank through the RBI.
Responding to the debate on the bill in Lok Sabha, Finance Minister Nirmala Sitharaman said the legislation is intended for the safety of depositors and not to undermine the powers of the registrar of cooperative societies.
The powers of the Registrar of Cooperative Societies have not been infringed, but the banking activity of cooperatives will be regulated by the Reserve Bank of India (RBI), she said.
“I want to make it very clear that this bill does not provide for regulation of cooperative banks by the central government. We are not doing anything new, we are working in the interest of depositors,” she added.
The amendment does not require the central bank to take control of cooperative banks, she said.
Clarifying the need for the ordinance, the Minister of Finance said: “There was absolutely a need for it. It was not known when the next session of Parliament would take place due to the COVID-19 pandemic and, in the meantime, the protection of depositors. is of critical importance. “
In addition, there has been an increase in non-productive assets (NPAs) of cooperative banks, Sitharaman said.
According to annual financial data made available before June, the gross NPA ratio of urban cooperative banks increased to 10% in 2019-2020 from 7% in 2018-2019, she added.
The Minister of Finance stressed that the government had not forgotten the success of the cooperative movement, but added that if cooperatives provide banking services, then several committees have recommended that it be necessary to regulate them.
“It’s not as if we have forgotten the success of the cooperative movement. We are not undermining it, but we have to face the truth that over the past two decades, 430 cooperative banks have been tortured and put down. in liquidation, ”she said.
“On the other hand, not a single commercial bank during the same period whose depositors are protected by banking laws has been put into liquidation. So this should not be interpreted as we enter the field of states”, she added.
Opposition parties protested the bill, claiming it violated states’ rights.
“We are not undermining anyone, but if depositors suffer, we must stand by their side. We bring this law to protect the interests of depositors,” Sitharaman added.
The proposed law aims to enforce the RBI’s banking regulatory guidelines in cooperative banks, while administrative matters will still be guided by the Registrar of Cooperatives.
It aims to bring cooperative banks closer to the development of the banking sector through better management and appropriate regulation that protects the interests of depositors.
The bill is gaining prominence following a Punjab and Maharashtra Cooperative Bank (PMC) scam affecting thousands of customers who had difficulty withdrawing their money due to restrictions imposed by the RBI.
PMC Bank loaned over Rs 6,700 crore to a single HDIL real estate company through allegedly fraudulent means and also concealed the RBI’s exposure by creating separate ledgers.
There are around 1,540 cooperative banks with a depositor base of 8.60 crore and total savings of around Rs 5 lakh crore.
Congress and the DMK on Wednesday opposed the bill, saying it violates state rights.
Urging the government to withdraw the bill, Congressman Manish Tewari said the use of ordinances to make laws “undermines the majesty of Parliament” and constitutes an attack on the legislature.
At a time when the country’s GDP growth rate was plummeting for the seven quarters leading up to the lockdown and all economic activity during the lockdown had come to a complete halt, there was absolutely no reason to enact ordinance, especially when the bill has been under consideration in this House, he said.
“In a federal regime, this ordinance and the bill that seeks to replace it constitute a frontal attack on the federal structure of the Constitution and this will have long-term implications for the democratic regime in India,” Tewari said. .
He also said that the “punch” that Finance Minister Nirmala Sitharaman attempted in separating the Primary Farm Credit Corporation, the Long Term Credit Corporation and the District Co-operative Banks will create “utter chaos” in the agricultural economy, even anarchy, because of the symbiotic links between these bodies.
The amendments proposed in the bill do not apply to primary agricultural credit societies or cooperative societies whose main object and main activity is the long-term financing of agricultural development, and which do not use the words ‘bank’, ‘banker’ or ‘bank’.
Sitharaman, while proposing the bill to the Lok Sabha, said, “We don’t do anything to touch state co-operatives, we don’t do anything to primary agricultural credit companies, we don’t do anything to touch cooperative societies. whose main object and activity is to provide long-term financing for agricultural development.
The changes would only apply to cooperative societies active in the banking sector, she added.
Tewari added that while there had been cases of malfeasance in district cooperative central banks and urban local cooperative banks, there were also just as many success stories.
“State governments are more than competent to carry out their functions,” he added.
Strongly opposed to the bill, DMK MP Senthil Kumar said it would be seen as a violation of state rights.
Kumar said he disagreed with the finance minister’s argument that many cooperative banks in the country are suffering losses.
Citing the example of Tamil Nadu, he said 128 cooperative banks are operating successfully in the state.
“(The bill) will be seen as an infringement of state rights and an infringement of state rights has been seen consistently by this government. This government has been undermining the democratic process for a long, long time,” he added. .
Kumar also said that the RBI is already overloaded with many other responsibilities and that regulating cooperative banks will further increase its burden.
“The incompetence of this government was manifested in the lack of interest in recovering the bad debts of Mallyas and Modis, but to attack the farmer”, he alleged.
He also said the country was going through a serious health and economic crisis “created by the government” and blamed its shortcomings on the COVID-19 pandemic and said it was “an act of God” .
Trinamool Congressman Saugata Roy said he supported the DMK MP’s claim regarding the success of South Indian cooperative banks and “where he said this bill violated the rights of States “.
Roy further said the RBI had not been an effective regulator and had failed to take preventative action in the Yes Bank case.
“In fact, this government is hindering the cooperative movement. I do not think such a bill was necessary. I don’t think the RBI has turned out to be the best regulator in the country, I don’t think the power of state co-ops should be taken away, ”Roy said.
Trinamool Congressman Nusrat Jahan Ruhi also opposed the bill, while TDP’s Jaydev Galla welcomed the legislation.
Supporting the legislation, BJP’s Shivkumar Udasi said passing the bill would build confidence among depositors and also prevent further scams.
YSRCP MP Lavu Sri Krishna Devarayalu also supported the bill but added that “let’s not make the RBI a one-size-fits-all solution for every problem”.
G Kirtikar of the Shiv Sena also spoke in favor of the bill.
Tejasvi Surya of BJP said that from a depositor’s perspective, a bank is a repository of trust.
By the time a financial institution uses the word “bank,” depositors assume that it is supervised and guided by the RBI, so its deposits are safe.
The depositor does not understand and does not know that multiple laws cover the banking sector and cooperative banks.
“This double-checking regime therefore creates a particular practical and constitutional problem,” he said.
Nothing sheds light on this anomaly better than the recent recovery of Yes Bank, as depositors at Punjab & Maharashtra Co-operative Bank (PMC) as well as Sri Guru Raghavendra Sahakara Bank continue to be in distress, said he added.
AM Arif (CPI-M), Saptagiri Sankar Ulaka (Congress) and Sunil Dattatray Tatkare (NCP) also participated in the discussion.