Banking Regulation Bill Passed by the Lok Sabha

The Lok Sabha in the Parliamentary session held on Wednesday passed the Banking Regulation (Amendment) Bill 2020. It proposes amendments to the current Banking Regulation Act 1949. The amendment in the Bill brings the co-operative banks under the control of the RBI. It gives vast powers to the RBI for the protection of the depositors. But this Bill does not cover the Primary Agricultural Credit Societies or co-operative societies whose primary object and business is providing long term finance for agricultural development, who do not use the words ‘Banks’, ‘Banking’ or ‘Banker.’

The Finance Minister, Nirmala Sitharaman on Wednesday stated in the Lok Sabha that “For the last two years, depositors of co-operative banks and small banks are facing problems. We are trying to bring this amendment to protect the depositors.

These banks have fallen into hard days requiring; therefore, the regulator to bring a moratorium and to solve the problem seems to consume all the time. We are trying to bring this amendment to protect the depositors. As in some unfortunate situation in banks, depositors are put to hardship.”

The Finance Minister said the need to introduce the Bill is because the gross NPA ratio of the co-operative banks increased from 7.27% in March 2019 to 10% in March 2020 due to the stress caused to them by the pandemic. In the past two decades, around 430 banks have been de-licensed and gone into liquidation. Thus, the introduction of the Bill is for the protection of the interests of the depositors.

This Bill provides for the co-operative banks to raise equity shares or special shares or unsecured debentures or bonds to any member of the bank or any person residing in its area with the prior approval of the RBI. 

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This Bill also provides conditions and qualifications of the Chairman of the co-operative bank. It gives power to the RBI to remove the Chairman if he is not fit or proper and appoint a suitable one if the bank does not appoint anyone. The RBI can also supersede the Board of Directors of a multi-state co-operative bank under certain conditions.

The RBI may even supersede the Board of the co-operative bank after consulting the respective State Government in a specific situation. It may do so where the registration of the co-operative bank is under the Registrar of Co-operative Societies of a state. These amendments bring the co-operative bank under the control and regulation of the RBI.

This Bill proposes for amendment of Section 45 of the Banking Regulation Act. It enables the RBI to make a scheme of reconstruction or amalgamation for a banking company which protects the interests of the depositors, public and the banking system. This amendment provides for securing proper management of the banks even without making an order of moratorium, which helps to avoid disruption of the financial system. 

This Bill gives a mechanism for restructuring the banks. The Bill provides the RBI regulatory oversight over these banks, and thus empowers it. These amendments improve the confidence of the public in the co-operative banks. It helps for protecting the interest of the stakeholder in the long run. Thus, this Bill seeks to bring about positive changes in the banking structure of the country.

For any clarifications/feedback on the topic, please contact the writer at mayashree.acharya@cleartax.in