Lok Sabha passes bill to bring co-op banks within RBI ambit1 min read . Updated: 17 Sep 2020, 07:31 AM IST
The bill will allow RBI to undertake amalgamation or reconstruction of a bank without placing it under moratorium
The Banking Regulation (Amendment) Bill, 2020, was passed in the Lok Sabha on Wednesday. The bill, moved by finance minister Nirmala Sitharaman seeks to protect the interest of depositors by bringing cooperative banks under the regulatory framework of the Reserve Bank of India (RBI).
Sitharaman said cooperative societies functioning as banks must be brought under the same rules as scheduled commercial banks and be subjected to better governance and regulation by RBI. Cooperative banks have been under the dual control of cooperative societies as well as RBI. The amendments have been made to boost depositors’ confidence and prevent a Punjab and Maharashtra Cooperative (PMC) Bank-like fraud that impacted millions of depositors.
With the amendments, the central bank will now be able undertake amalgamation or reconstruction of a bank without placing it under moratorium. Earlier, if a bank was placed under moratorium, it not only limited withdrawals by depositors, but also disrupted a bank’s lending operations.
The bill will now have to be passed in the Rajya Sabha.
“We are trying to bring this amendment to protect the depositors. As in some unfortunate situation in banks, depositors are put to hardship…The financial status of 277 urban cooperative banks is weak. 105 cooperative banks are not able to meet the minimum regulatory capital requirement. 47 banks’ net worth is negative," Sitharaman said, adding that stress in urban cooperative banks have further increased due to covid-19.
The gross non performing asset ratio for such banks have increased from 7.2% in March 2019 to over 10% in March 2020, the minister told the Lok Sabha. “Could not pass the bill during the budget session. The ordinance was brought in only because the financial health of cooperative societies also performing as bank was becoming delicate," she added.
The changes in the law will not affect existing powers of the state registrars on cooperative societies, nor will the changes apply to primary farm credit societies or cooperative societies, the minister added.