President promulgates ordinance to bring co-operative banks under RBI supervision

New Delhi: 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 Saturday, June 27.

“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,” it said.

“The amendments do not affect existing powers of the State Registrars of Co-operative Societies under state co-operative laws,” it added.

“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,” it said.

“The Ordinance also amends Section 45 of the Banking Regulation Act, to enable the 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,” it said.

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 of increasing professionalism and improving governance among the cooperative banks.