THE BANKING REGULATION (AMENDMENT) ACT, 2020

Introduction 

The minister of finance of India, Ms Nirmala Sitharaman, introduced the Banking Regulation (Amendment) Bill, 2020 in Lok Sabha on 3rd March 2020. The Bill aims to amend the Banking Regulation Act,1949 with respect to the functioning of Cooperative banks. It also aims to bring more transparency by providing information on various aspects such as licensing, management, and operations of banks.

Background

Banking Regulation Amendment Bill, 2020 was passed by the Lok Sabha to bring the cooperative banks under the supervisory purview of the Reserve Bank of India. The need to bring an amendment was felt with the worsening conditions of cooperative banks. The Central Government is of the opinion that a variety of problems were faced by the depositors of cooperative banks and small banks. The Banking Regulation Bill aims to protect the interest of such depositors of cooperative banks and small banks.

The scope of the Bill does not extend to certain cooperatives, namely, 

1. primary agricultural credit societies, 

2. cooperative land mortgage banks, and any other cooperative societies (except those specified in the Act). 

What has Changed?

The key highlights of the Banking Regulation (Amendment) Bill, 2020

 are:

1. Issuance of Shares & Securities by Cooperative Banks - The Bill allows cooperative banks to issue equity shares and preference shares. Cooperative banks can also issue special shares at face value or a premium. Such an issue can be made to any member or any other person who resides within its area of operation. It further allows the issue of unsecured debentures, bonds, or any similar securities with a maturity of 10 or more years.

2. Supersession of Board of Directors – In a case where RBI deems it to be necessary that it should supersede the Board of Directors of a multi-state cooperative for up to 5 years under certain conditions, the Bill states that the RBI can do so, only after consultation with the concerned state government, within the prescribed time limit.  

3. Power to Exempt Cooperative Banks –. The Bill empowers the RBI to exempt a certain cooperative bank or/and a certain class of cooperative banks from certain provisions of the Act. It can do so by way of notification.

Our Word

In the scenario where the condition of cooperative banks and commercial banks is deteriorating in the country, the government is bound to take all possible steps to improve the condition. Working in this direction, The Banking Regulation (Amendment) Bill, 2020, was passed. With the implementation of this bill, RBI can leverage the existing deep-rooted network of cooperative banks rather than creating a new one. It will help in offering services to the last mine in an efficient manner.

Author: Shrishti Zaveri