Bill To Bring Cooperative Banks Under RBI Passed In Lok Sabha

On Wednesday, Lok Sabha passed the Banking Regulation (Amendment) Bill, 2020. The Bill, that proposes amendments to the Banking Regulation Act, 1949 aims to bring cooperative banks under the supervision of the Reserve Bank of India (RBI).

"We are trying to bring this amendment to order to protect the depositors who in the last two years.... are put through hardship, either because these banks have fallen into bad days, requiring therefore the regulator to bring a moratorium and to solve the problem seems to consume all the time," said Finance Minister Nirmala Sitharaman in Lok Sabha.

The Bill was first introduced in March during the Budget session, however, Sitharaman said, it could not be passed due to COVID-19 pandemic. She informed the Lok Sabha that 277 urban cooperative banks have weak financial state of affairs and are reporting losses. Further 105 urban cooperative banks are not even able to meet the minimum regulatory capital requirement, while 47 have negative net worth and 328 are having over 15 percent gross NPAs.

"Due to the pandemic, the stress in cooperative banks increased and the gross NPA ratio increased from 7.27 percent in March 2019 to over 10 percent in March 2020. Therefore it was felt that in the interest of the depositors the ordinance should be brought in," she added.

In June, the union cabinet approved the ordinance to bring 1,482 urban and 58 multi-state cooperative banks under the supervision of RBI.

Sitharaman said that the govt intends to amend section 3 and 56 Banking Regulation Bill to bring cooperative banks under the regulation of RBI "so that provisions currently applicable commercial banks will also be applicable to them."

Section 45 will be amended to allow RBI to under amalgamation of cooperative banks without having to place them under moratorium.

The amendments do not apply to Primary Agricultural Credit Societies (PACS) or co-operative societies whose primary object and principal business is long-term finance for agricultural development, and which do not use the words "bank", "banker" or "banking".