Banking Regulation Ordinance 2020 promulgated
President Ram Nath Kovind has promulgated the Banking Regulation (Amendment) Ordinance, 2020 to bring all urban cooperative banks and multi-state cooperative banks under the supervision of the RBI in order to protect the interest of depositors. The Ordinance amends the Banking Regulation Act, 1949 as applicable to cooperative banks, an official statement said on 27 June 2020.
- The Ordinance seeks to protect the interests of depositors and strengthen cooperative banks by improving governance and oversight by extending powers already available with RBI in respect of other banks to Co-operative Banks as well for sound banking regulation, and by ensuring professionalism and enabling their access to capital.
- The amendments do not affect existing powers of the State Registrars of Co-operative Societies under state co-operative laws.
- The amendments also 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” and do not act as drawees of cheques.
- The Ordinance also amends Section 45 of the Banking Regulation Act, to enable making of a scheme of reconstruction or amalgamation of a banking company for protecting the interest of the public, depositors and the banking system and for securing its proper management, even without making an order of moratorium, so as to avoid disruption of the financial system.
- There are 1,482 urban cooperative banks and 58 multi-state cooperative banks having about 8.6 crore depositors with a total savings deposit of about Rs 4.85 lakh crore.
- The decision assumes significance in the wake of scams in cooperative banks, including the Punjab and Maharashtra Cooperative (PMC) Bank, affecting lakhs of customers who are facing difficulty in withdrawing their money due to restrictions imposed by the Reserve Bank of India (RBI).
- The RBI had placed regulatory curbs on PMC Bank on September 23, 2019, after finding out certain financial irregularities and misreporting of loans given to real estate developer HDIL.
- Earlier this month, the RBI had put restrictions on withdrawals from People’s Co-operative Bank, Kanpur, Uttar Pradesh.
- Finance Minister Nirmala Sitharaman had introduced ‘The Banking Regulation (Amendment) Bill, 2020’ in the Lok Sabha on March 3, 2020, which is pending approval.
- The proposed law sought to enforce banking regulation guidelines of the RBI on cooperative banks.
- In her February 1 Budget speech, Sitharaman had proposed amendments to the Banking Regulation Act with an aim to increasing professionalism and improving governance among the cooperative banks.
- Co-operative banks are financial entities established on a co-operative basis and belonging to their members.
- This means that the customers of a co-operative bank are also its owners. These banks provide a wide range of regular banking and financial services. However, there are some points where they differ from other banks.
- Broadly, co-operative banks in India are divided into two categories - urban and rural. Rural cooperative credit institutions could either be short-term or long-term in nature.
- Further, short-term cooperative credit institutions are further sub-divided into State Co-operative Banks, District Central Co-operative Banks, Primary Agricultural Credit Societies.
- Meanwhile, the long-term institutions are either State Cooperative Agriculture and Rural Development Banks (SCARDBs) or Primary Cooperative Agriculture and Rural Development Banks (PCARDBs).
- On the other hand, Urban Co-operative Banks (UBBs) are either scheduled or non-scheduled. Scheduled and non-scheduled UCBs are again of two kinds- multi-state and those operating in a single state.
- In India, co-operative banks are registered under the States Cooperative Societies Act. They also come under the regulatory ambit of the Reserve Bank of India (RBI) under two laws, namely, the Banking Regulations Act, 1949, and the Banking Laws (Co-operative Societies) Act, 1955.
- They were brought under the RBI's watch in 1966, a move which brought the problem of dual regulation along with it.
- The problem of rural credit was the key reason behind the advent of the co-operative movement in India, which began with the passage of the Co-operative Societies Act in 1904.
- The next addition was the Co-operative Societies Act, 1912, which focussed on the need for regulation of such societies and hence the establishment of appropriate bodies to oversee their functioning.