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Banking Regulation (Amendment) Bill 2020

Topics Covered: Inclusive growth and issues arising from it.

Banking Regulation (Amendment) Bill, 2020:


Context:

Passed in Lok Sabha. The Bill replaces an ordinance to the same effect promulgated on June 26.

  • The Bill proposes amendments to the Banking Regulation Act, 1949.
  • With this new Bill, the central government aims to bring cooperative banks under the supervision of the Reserve Bank of India (RBI).

 Key changes:

  • Now, Provisions applicable to banking companies will also applicable to cooperative banks. This ensures that cooperative banks are equally subject to better governance and sound banking regulations through the Reserve Bank of India (RBI).
  • With the amendments, RBI will be able to undertake a scheme of amalgamation of a bank without placing it under moratorium.
  • It will help the central bank to develop a scheme to ensure the interest of the public, banking system, account holders in the bank and banking company’s proper management, without disrupting any banking functionalities.
  • The amendments also allow cooperative banks to raise money via public issues and private placements of equity or preference shares as well as unsecured debentures, with the central’s bank’s nod.

However, the changes will not:

  1. Affect the existing powers of the state registrars of co-operative societies under state laws.
  2. 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”.

Why this was necessary?

  • This was felt necessary in the wake of the recent Punjab & Maharashtra Cooperative (PMC) Bank crisis.
  • Cooperative banks have 8.6 lakh account holders, with a total deposit of about ₹5 lakh crore.
  • Besides, Urban cooperative banks reported nearly 1,000 cases of fraud worth more than ₹220 crore in past five fiscal years.

How cooperative banks are regulated?

Cooperative banks are currently under the dual control of the Registrar of Cooperative Societies and RBI. While the role of registrar of cooperative societies includes incorporation, registration, management, audit, supersession of board and liquidation, RBI is responsible for regulatory functions such as maintaining cash reserve and capital adequacy, among others.

InstaLinks:

Prelims Link:

  1. What are cooperative banks?
  2. How they are regulated? What is dual regulation?
  3. Overview of the Banking Regulation (Amendments) Bill, 2020.

Mains Link:

Discuss the issues associated with Dual regulation of cooperative banks.

For further details about the Bill, please go through:

https://www.prsindia.org

Sources: the Hindu.