The Government introduced Banking Regulation (Amendment) Bill, 2020 to bring all the co-operative banks on par with the developments in the banking sector by way of better management and proper regulation of co-operative banks. This bill is brought to assure that the affairs of the co-operative banks are conducted in a manner that protects the interests of its depositors. Banking Regulation (Amendment) Bill, 2020 will further benefit the co-operative banks by increasing professionalism in banks, enabling access to capital, improving the governance and ensuring sound banking system through the Reserve Bank of India (RBI). According to Finance Minister Nirmala Sitharaman (Banking Regulation Amendment) Bill, 2020 is the need of the hour. This bill will avoid PMC Bank-like crisis in the future. Nirmala Sitharaman also said that the Punjab and Maharashtra Cooperative (PMC) Bank crisis affects a lot of small depositors in difficulty, which provoked the Government to take action. This bill is likely to be executed during the second leg of the Budget session; the session will end on April 3.
Why Banking Regulation Bill 2020 is introduced In Parliament?
The Union Cabinet on
approved the amendment to the Banking Regulation Bill, 2020 for reasons cited:
- The bill will strengthen the financial stability of co-operative banks.
- Amendments are proposed for increasing professionalism, enabling access to capital and to improve governance of RBI.
- Banking Regulation Amendment Bill, 2020 will protect the interests of the depositors.
- The decision will prevent scams like the Punjab and Maharashtra Cooperative (PMC) Bank, which affected lakhs of customers who are now facing difficulty in withdrawing their money due to restrictions imposed by the RBI.
Banking Regulation (Amendment), 2020 not to Apply to Certain Co-operative Societies
Regardless of the objects contained in the National Bank for Agriculture
and Rural Development Act, 1981, This Rule comes as a Substitution of new section for section
This Act shall not apply to:
- primary agricultural credit society,
- a co-operative land mortgage bank,
- a co-operative society whose basic object and main business is of providing long term finance for agricultural development if such cooperative society does not use in its name, or in business, the words like bank, banker or banking and it does not act as drawee of cheques.
What are the Amendments made in section 56 by Banking Regulation (Amendment) Bill, 2020?
The following changes are made in Section 56 of the Banking Regulation Act, 1949:
Banking Regulation Act, 1949
Banking Regulation (Amendment) Bill, 2020 (Inserted)
provisions of this Act, in force for the time being( in opening portion)
|| Not with standing anything mentioned in any other law for the time being in force, the provisions of this Act. |
(e)(i) and (iii)
(e)(i) and (iii) omitted
|| In clause (f),(i)-the words co-operative land mortgage banks and, (ii)- co-operative land mortgage bank. || In clause (f),(i)-the words co-operative land mortgage banks and, (ii)- co-operative land mortgage bank omitted. |
(fi), (fii) and (g)
(fi), (fii) and (g) omitted.
The following sub-clauses shall be inserted in clause (a), after sub-clause (ii):
clause (iii) – is references to the “memorandum of association” or “articles of
association” which shall be construed as references to by-laws.
clause (iv) – the provisions referred in the companies Act, 1956, except in
Part III and Part IIIA, shall be referred to the corresponding regulations
under which a co-operative bank is registered.
and registrar of Companies shall be referred here as central registrar or
registrar of Co-operative societies.
Changes by Banking Regulation (Amendment) Bill, 2020 in Section 12 of Banking Regulation Act, 1949
Section 12 is – Issue and regulation of the paid-up share capital and securities by the co-operative banks.
The clauses that are
omitted in Section 12 are as follows:
The following changes are prescribed in Section 12(1), 12(1)(i), 12(ii):
- With the prior approval of Reserve Bank, a co-operative Bank by way of public issue or private placement-
- On face value or at the premium issue of equity shares or preference shares.
- The unsecured debentures or bonds or other securities with maturity whether it be initial or original of not less than ten years, to any member of the co-operative bank.
Restriction on loans and advances in Banking Regulation (Amendment) Bill, 2020
No Co-operative Banks will make:
- Loans or advances in the security of its
unsecured loans or advances to:
- Firms or private
companies in which any of its directors are interested.
- Any company in which the
chairman of the Board of directors of the co-operative bank is interested.
Audit for Co-operative Banks in Banking Regulation (Amendment) Bill, 2020
- The auditors here for the purpose of the audit will have the same powers and exercise the same functions and be subject to liabilities as prescribed in Companies Act, 1956.
- The Reserve Bank of India may at any time by general or special order direct an additional audit for the co-operative bank accounts.
Supersession of the Board of directors of a multi-State co-operative bank in Banking Regulation (Amendment) Bill, 2020
- If in public interest the Reserve Bank may order to supersede
the Board of directors of such multi-State co-operative bank for a period not
exceeding five years. The time period can be extended. However, the total
period cannot exceed five years.
- The Reserve Bank of India can also appoint an administrator
for five years.
- The Administrator appointed shall vacate office immediately
after the Board of directors of the multi-State co-operative society has been
- According to the Banking
Regulation (Amendment) Bill, 2020, the Reserve Bank of India will consult state
governments before issuing the order for the supersession of boards of
co-operative banks that are registered with states.
Who will Control the Co-Operative
Banks as per the new regulation?
the Co-operative banks under the dual control of the Registrar of Co-operative
Societies and the Reserve Bank of India (RBI).
Role of Registrar
The purpose of the registrar of co-operative societies
- RBI is responsible for regulatory functions such as maintaining of cash reserve and capital adequacy, amongst others.
- The administrative role will be done by the Registrar of Cooperative Societies as before.
There are 1,540 co-operative banks with a depositor base of Rs.8.60 crore having total savings of about Rs 5 lakh crore. The RBI superseded PMC Bank’s Board after uncovering many irregularities. Cash withdrawals were capped at Rs. 1,000 per account for six months but subsequently relaxed to Rs. 50,000 as panic spread among depositors. The Finance Minister also said that the audit of such banks would be as per the central bank’s guidelines and recruitment for banks’ management will be based on specific qualifications. All the mentioned steps will be implemented by the Reserve Bank of India in a phased manner as mentioned in Banking Regulation (Amendment) Bill, 2020.