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Banking Regulation (Amendment) Bill, 2020

Banking Regulation (Amendment) Bill, 2020

Banking Regulation (Amendment) Bill, 2020

On September 14, 2020 Union Finance Minister Nirmala Sitharaman withdrew an earlier version of the bill, this bill was tabled in March before the COVID-19 pandemic. Due to pandemic sessions of Lok Sabha was not taking place and as soon as the Mansoon session of the Lok Sabha started the Banking Regulation (Amendment) Bill, 2020 was introduced by Nirmala Sitharaman in the Lok Sabha.

The Lok Sabha has passed the bill on 16th September, 2020

The bill introduced amendments to the Banking Regulation Act, 1949, and will replace the the Banking Regulation (Amendment) Ordinance, 2020.

This bill aims to bring co-operative banks under the supervision of the Reserve Bank of India (RBI). The bill will also permit the RBI to initiate a scheme for reconstruction or amalgamation of a stressed lender without imposing a moratorium.

The Union Cabinet had approved the ordinance on June 26, 2020, when the Parliament was not in session.

According to the statement of reasons and objectives mentioned in the bill, “As the economic situation arising from the COVID-19 pandemic had increased the stress in both co-operative banks and banking companies, there was an immediate need for legislation in this regard.”

Finance Minister Niramala Sitharaman on September 14 withdrew an earlier version of the bill, which was tabled in March before the COVID-19 pandemic.

She says, we want to regulate banking activity, with in our power and will not interfere into ‘federalism’.

“Consultation with States is required only when legislating on concurrent list item, but this Bill is under the union legislative power.  So consultation is not necessary,” she says.

I am not undermining co-operative banks but need to regulate these banks. Regulation will make these co-operative banks more professional, adds Ms. Sitharaman.

In the last two decades 430 co-operative banks were delicenced, went towards liquidation.

Not a single commercial bank, under Banking Regulation Act, gone into liquidation. There was an increase in gross non-performing asset between 2018-19 to 2020 in co-operative banks , so this ordinance.

Co-operative banking societies need capital as per minimum regulatory requirement, such capital can not just be shareholders capital but also bond, which is cheaper to raise for banks, Ms. Sitharaman adds.

According to the latest version of the bill, the Banking Regulation Act shall not apply to primary agricultural credit societies and co-operative societies whose primary object and principal business is of providing long term finance for agricultural development.

The bill also states that if a co-operative bank is registered with the Registrar of Co-operative Societies of a state, the central bank may supersede the lender’s board after consultation with the concerned state government

Other points mentioned in the bill:

The RBI may supersede the board of a multi-state co-operative bank for up to five years under certain conditions.

The RBI has the authority to exempt a co-operative bank or a class of co-operative banks from certain provisions of the Act.

A co-operative bank may issue equity, preference, or special shares on face value or at a premium to its members, via a public issue or private placement.

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