Rajya Sabha adopts Banking Amendment Bill 2020 bringing together cooperative banks under the auspices of the RBI

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  • The banking bill (amendment) 2020 was passed in Rajya Sabha.
  • In her response, Finance Minister Sitharaman stressed that the bill aims to protect the interests of depositors.
  • According to her, with the bill becoming law, cooperative banks can benefit from a rapid recovery without depending on the moratorium.

The Banking Regulation (Amendment) Bill 2020 was passed in Rajya Sabha after authorizing Lok Sabha earlier this week. It was introduced earlier this year in March by the Minister of Finance Nirmala Sitharaman to avoid another crisis similar to that of the Cooperative Bank of Punjab and Maharashtra (PMC).

“During the COVID period, many cooperative banks have come under pressure. 277 urban cooperative banks report losses, 105 are unable to meet minimum regulatory capital requirements, ”Sitharaman said in his response.

According to her, the new bill will not only protect the interests of depositors but also give cooperative banks the opportunity to recover without having to depend on moratoria.

Mahesh Poddar of the Bharatiya Janata Party (BJP) kicked off the bill, followed by Sujeet Kumar of Bharatiya Janata Dal (BJD). “The bill is consistent with the principle of encouraging ease of doing business and it reduces the burden on the courts and supports the bill,” Kumar said.

Get 2020 Banking (Amendment) Bill from Lok Sabha to Rajya Sabha
Sitharaman responded to questions posed by 32 MPs during the Lok Sabha session. “State consultation is only required when legislation on competing list items, but this bill falls within the legislative power of the Union. Consultation is therefore not necessary, ”she said.

The Minister of Finance pointed out that in the past 20 years, 430 cooperative banks have been written off and have been forced to liquidate. In comparison, not a single commercial bank under the Banking Regulation Act has gone into liquidation during the same period.

Parts of it have already been passed as an ordinance amid the COVID-19 crisis by President Ram Nath Kovind. The bill amends the Banking Regulation Act of 1949, which regulates the operation of banks and provides details on various aspects such as the licensing, management and operations of banks.

The bill was proposed as a tool to strengthen India’s banking system by giving the country’s apex banking institution, the Reserve Bank of India (RBI), more power over the more than 98,000 rural and urban cooperative banks. from India.

According to Sitharaman, being under the umbrella of the RBI will strengthen cooperative banks by increasing professionalism, enabling access to capital, improving governance and ensuring a healthy bank through RBI. “This is the need of the hour to avoid a crisis similar to that of PMC Bank in the future,” she said when introducing the bill in March.

Banking Regulation (Amendment) Bill, 2020: the proposal
The proposed law aims to enforce the RBI’s banking guidelines on cooperative banks, while administrative matters will still be guided by the Registrar of Cooperative Societies. It also proposed to align cooperative banks with developments in the banking sector through better management and appropriate regulation to protect the interests of depositors.

This means that the RBI reserves the right to overrule any decision made by the board of directors for a period of up to five years under certain conditions where the public interest may override the bank’s demands to protect the interests of depositors.

However, for cooperative banks that are also registered with a state’s Registrar of Cooperative Societies, the RBI will need to consult with the state to replace the board of directors.

If the new bill passes and Indian President Ram Nath Kovind gives his approval, cooperative banks will also be able to issue stocks, preferred stocks and special stocks to raise funds. In addition, they can issue debentures, bonds or other unsecured securities with maturities of ten years or more to bring in more money.

Banking Regulation (Amendment) Bill, 2020: exceptions
As more powers will be transferred to the RBI, the umbrella banking institution will also have the ability to exempt certain banks – or class of banks – from the bank’s provisions. This can range from the qualifications of the board of directors to the appointment of the president.

The RBI can also define the period during which these exemptions will apply and under what conditions.

At this time, the Banking Regulation (Amendment) Bill, 2020 will not apply to certain cooperative societies such as agricultural credit societies and cooperative mortgage banks. Excluded entities are not permitted to use the words “bank”, “banker” or “bank” in their name or in the course of their activity.

President Kovind has already approved the Banking Regulation (Amendment) Order of 2020 on June 27, placing all urban cooperative banks and multi-state cooperative banks under the supervision of the RBI.

The ordinance omits certain provisions such as prohibiting cooperative banks from granting loans or advances against the security of their shares or preventing cooperative banks from opening a new place of business outside the city, town or country. village where it is located without permission from the RBI.

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