Banking Regulation Amendment Bill, 2020 passed. What it means for banks, customers

Lok Sabha on Wednesday passed Banking Regulation Amendment Bill, 2020 to bring the cooperative banks under the supervision of the Reserve Bank of India. In the wake of deteriorating condition of cooperative banks in the country, the central government amended the Banking Regulation Act, 1949.

"For the last two years, depositors of cooperative banks and small banks are facing problems. We are trying to bring this amendment in order to protect the depositors," finance minister Nirmala Sitharaman said on Thursday in the Lok Sabha.

Commenting on the new Bill, Mandar Agashe, founder, managing director & vice chairman, Sarvatra Technologies said, "RBI can now leverage the existing and deep entrenched network of co-operative banks instead of creating a new one which will help offer services to the last mile in an efficient manner."

The Bill will replace the the Banking Regulation (Amendment) Ordinance, 2020. In June, the union cabinet approved the ordinance to bring 1,482 urban and 58 multi-state cooperative banks under the supervision of the central bank.

All you need to know about the new Banking Regulation (Amendment) Bill, 2020:

1) The Bill allows the central bank to initiate a scheme for reconstruction or amalgamation of a bank without placing it under moratorium.

2) If the central bank imposes moratorium on a bank, the lender can not grant any loans or make investments in any credit instruments during the moratorium tenure, according to the Bill.

3) The co-operative banks will be allowed to issue equity, preference, or special shares on face value or at a premium to its members, or to any other person residing within their area of operations. The banks may also issue unsecured debentures or bonds or similar securities with maturity of ten or more years to such persons. However, a prior approval from RBI is mandatory for such issuance.

4) No person will be entitled to demand payment towards surrender of shares issued to him by a co-operative bank, the Bill states.

5) The Bill mentions that RBI may exempt a cooperative bank or a class of cooperative banks from certain provisions of the Act through notification. These provisions are related to employment, the qualification of the board of directors and, the appointment of a chairman.

6) RBI may supersede the board of directors of a multi-state co-operative bank for up to five years under certain conditions. These conditions include cases where it is in the public interest for RBI to supersede the Board, and to protect depositors.

7) The Bill discards the provision of Banking Regulation Act, 1949 that cooperative banks cannot open a new place of business or change the location of the banks outside of the village, town, or city in which it is currently located without permission from RBI.

8) The changes will not affect the existing powers of the state registrars of co-operative societies under state laws. "This Bill does not regulate cooperative banks. The amendment is not for central govt to take over the cooperative banks," Sitharaman said.

Exclusion: The Banking Regulation Amendment Bill, 2020 will not be applicable to a) Primary agricultural credit societies, b) Cooperative societies whose principal business is long term financing for agricultural development.

These two societies must not: a) use the term ‘bank’, ‘banker’ or ‘banking’ in their name or in connection with their business, b) Act as an entity that clears cheque.

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