The Banking Regulation (Amendment) Bill, 2020 is passed by Parliament

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The Banking Regulation (Amendment) Bill, 2020

The Bill was presented by our Finance Minister Nirmala Sitharaman with an aim to guard the interest of the depositors furthermore control the functioning of Cooperative Banks by bringing them within the statutory framework of RBI.

 An ordinance to that effect was promulgated by the President on 26th June 2020. The Bill takes to substitute the Ordinance and amend the Banking Regulation Act, 1949.

Salient Features

According to the statement and objects added to the Bill, “certain amendments were necessary for the parent Act to provide for better management and proper regulation of co-operative banks and to ensure that the affairs of the co-operative banks are conducted in a manner that protects the interests of the depositors, by increasing professionalism, enabling access to capital, improving governance and ensuring sound banking through the Reserve Bank of India.”

Exclusions

The Bill doesn’t apply to:

  • primary agricultural credit societies
  • Co-operative societies whose principal business is long term financing for agricultural development.

It specifies that such societies must abstain from using the words ‘bank’, ‘banker’ or ‘banking’ in their names.

Power to make a scheme for reconstruction/amalgamation without imposing moratorium

The Bill amends Section 45 of the Banking Regulation Act, 1949, to facilitate the RBI to create a scheme to shield the interests of the public, the banking system, depositors or to secure the banking company’s appropriate management, devoid of first making an order of moratorium. This is to eschew interruption in the financial system as the Banks placed under moratorium can’t make any payment or discharge any legal responsibility.

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Issuance of shares and securities by co-operative banks

 Further, the Bill put down that a co-operative bank may, with the previous authorization of RBI, issue as well as control paid-up share capital plus securities to any member of such co-operative bank or any other individual residing within its area of operation.

Also, the Bill expound that no person will be entitled to demand payment towards the surrender of shares issued to him by a co-operative bank. Further, a co-operative bank cannot withdraw or reduce its share capital, except as specified by the RBI.

Supersession of Board of Directors

The Bill states that RBI may supplant the Board of Directors of a multi-state co-operative bank for up to five years:

  • in public interest
  • to protect depositors

It inserts that in case a co-operative bank is registered with the Registrar of Co-operative Societies of a state, then RBI may supersede its Board of Directors “after consultation” with the concerned state government.

Power to exempt cooperative banks

RBI holds the power to exempt certain cooperative banks or a class of such banks from certain provisions of the Act. Under these provisions, RBI can impose restrictions on certain types of employment, qualifications of the Board of Directors and, the appointment of a chairman. Such duration, conditions or limitations for the exemption will extent as RBI deemed fit to impose.

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