Bill to give more powers to RBI to regulate cooperative banks introduced in Lok Sabha

A bill to provide more powers to the RBI for regulating cooperative banks was introduced by Finance Minister Nirmala Sitharaman in the Lok Sabha on Tuesday. The Banking Regulation (Amendment) Bill, 2020, which comes in the backdrop of PMC Bank scam, seeks to strengthen cooperative banks by increasing professionalism, enabling access to capital, improving governance and ensuring sound banking through the RBI.

Introducing the bill, Sitharaman said it is the “need of the hour” to avoid a PMC Bank-like crisis in the future.

Noting that the happenings at the PMC Bank had “unfortunately” put a lot of small depositors in difficulty, she said there were demands that the government should do something about it. The Bill was introduced in the Lok Sabha amid the din, with Sitharaman saying that if the opposition wants to deny the small depositors their rights then “it is a shame”. It could not be cleared because of the ongoing ruckus in the House over the issue of violence in Delhi.
The proposed law seeks to enforce banking regulation guidelines of the RBI in cooperative banks, while administrative issues will still be guided by the Registrar of Cooperative.

It also proposed to bring cooperative banks on par with developments in the banking sector through better management and proper regulation of cooperative banks with a view to ensure that affairs of cooperative banks are conducted in a manner that protects the interest of depositors, it said.
“Keeping in view developments in the banking sector and regulation thereof overtime, it has become necessary to strengthen provisions of the said Act as applicable to cooperative banks,” said the Statement of Objects and Reasons of the Bill.

In her Budget speech, Sitharaman had said that to strengthen cooperative banks, amendments would be brought in the Banking Regulation Act for increasing professionalism, enabling access to capital and improving governance and oversight for sound banking through the RBI.
The decision assumes significance in the wake of a scam in the Punjab and Maharashtra Cooperative (PMC) Bank affecting lakhs of customers who have been facing difficulty in withdrawing their money due to restrictions imposed by the RBI.

The PMC Bank was found to have given over Rs 6,700 crore loan to a single realty company HDIL through alleged fraudulent means and also hid the stress from the RBI by creating separate books of accounts. There are 1,540 cooperative banks with depositor base of 8.60 crore having total savings of about Rs 5 lakh crore.

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