Parliament clears banking regulation bill to bring co-op banks under RBI

The Rajya Sabha on Tuesday passed the Banking Regulation (Amendment) Bill, 2020, that aims to bring co-operative banks under the regulatory framework of the Reserve Bank of India (RBI). Finance minister Nirmala Sitharaman said the amendments have been brought with singular objective of protecting depositors’ interest while ensuring the Punjab and Maharashtra Cooperative (PMC) Bank-like fiasco is avoided.

“We want to bring proper management, and make sure co-operative banks are professionally run. If at all, any such co-operative bank needs restructuring, we should be able to do that without bringing a moratorium period," Sitharaman said in the Rajya Sabha. The bill was passed in the Lok Sabha last week and will now need the President’s assent to become a law.

As per the amendments, co-operative societies that function as banks will be governed by same rules as scheduled commercial banks and will be subjected to regulation by the RBI. Cooperative banks so far have been under the dual control of cooperative societies as well as RBI. RBI will also be able undertake a scheme of amalgamation or reconstruction of a co-operative 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 amendments, however, will not affect the existing powers of the state registrars of co-operative societies under state laws and nor will the changes apply to primary farm credit societies or cooperative societies, the main business of which is long-term finance for agricultural development. Many cooperative banks came under stress during the covid-19 pandemic, Sitharaman said, adding that their finances are being closely monitored by the central bank. #Eiinfohub Source-PTI, Livemint