Lok Sabha clears Banking Regulation (Amendment) Bill

FM says legislation will protect interest of depositors, does not infringe on rights of states

Lok Sabha clears Banking Regulation (Amendment) Bill

Union Finance Minister Nirmala Sitharaman speaks in Lok Sabha during the ongoing Monsoon Session of Parliament, in New Delhi, on Wednesday, September 16, 2020. LSTV/PTI

Vibha Sharma

Tribune News Service

New Delhi, September 16

The Lok Sabha on Wednesday cleared the Banking Regulation (Amendment) Bill, 2020, a law that aims to protect the interest of depositors by bringing cooperative banks under the regulatory framework of Reserve Bank of India (RBI), amid demand by Opposition parties that the Bill be withdrawn and sent to the Select Committee and observations terming it an “infringement or encroachment” upon powers of states and federal structure and the cooperative movement in the country.

Finance Minister Nirmala Sitharaman, who systematically demolished all objections raised during the discussion on the Bill, however, remained non-committal to the question as to when the beleaguered depositors of the Punjab and Maharashtra Cooperative Bank, the collapse of which is precursor to the Ordinance during the Covid lockdown and now the legislation, will receive their deposits.

NCP’s Supriya Sule had wanted to know the “timeline when PMCB depositors will get their money” saying that “only small depositors have got back their money”. “What have you done for resolution to nine lakh affected families…people have died and committed suicide,” Sule said.

The Finance Minister, while making it clear that the law will only cover cooperative societies acting like banks, said the aim of the legislation is only to ensure that depositors of cooperative banks, a large number of which are in the red, do not suffer. “No one is infringing upon the power of States or federalism. Banking and regulation of banking is definitely under Central list. State cooperative laws are not being touched,” she said.

Adding that no one can deny the success story of cooperatives, Sitharaman said one also needs to keep in mind the fact that in past two decades 430 cooperative banks have been de-licenced and gone into liquidation, whereas not a single commercial bank, whose depositors are protected by the depositors law, have gone under liquidation. “Financial status of 277 urban cooperative banks is weak. As many as 105 cooperative banks are unable to meet the minimum regulatory capital requirement. 47 banks have net worth in negative. 328 urban cooperative banks have more than 15% gross NPA ratio,” she said.

Sitharaman also said cooperative banks in India are being regulated by RBI since 1965 unlike what some members had claimed. Regarding the reason for bringing the Ordinance (which is being replaced by the legislation) she said during the Covid lockdown there were “uncertainties” and “protection of depositors’ interest was important”. “We did not want PMC type incident hurting the depositors,” she said.

In March 2020, the stress in cooperative banks increased due to pandemic and gross ratios of urban cooperative banks increased from 7.7 per cent in March 2019 to over 10 per cent in March 2020. Therefore, it was felt that the ordinance should be brought in the interest of depositors,” she said

On an observation by Congress’ Manish Tewari on the need to “descramble” the RBI rather than overload it, Sitharaman said the preamble of the RBI Act says it has the authority to operate and empower credit system of the country. Allaying apprehensions, including that the legislation “does not touch agricultural credit societies or cooperative societies whose primary objective is to provide long-term funds for agricultural developments,” she said changes will not affect existing powers of the state registrars of co-operative societies under state laws. And nor will the changes apply to primary farm credit societies or cooperative societies, the main business of which is long-term finance for agricultural development.

Tewari, who called it “another attack on federal structure”, maintained that the changes will “create utter mayhem in the agricultural economy”. 

“For one PMCB, you don’t take way the power of cooperatives,” said AITC MP Saugata Roy. According to AIMIM leader Asaduddin Owasi, it was because of decision like demonetisation that banks are suffering. He also questioned why the government “was not showing PMCB depositors the same love they had shown to the depositors of the Bank”. Opposing the Bill, RSP’ NK Premachandram said “it will have far reaching implications on cooperatives”.

The Bill amends the Banking Regulation Act, 1949.  

The Act regulates the functioning of banks and provides details on various aspects such as licensing, management, and operations of banks.  

The Bill aims to bring co-operative banks under the supervision of the RBI

It will also permit the RBI to initiate scheme for reconstruction or amalgamation of a stressed lender without imposing a moratorium.

It does not apply to a primary agricultural credit society or a co-operative society whose primary object and principal business is providing long term finance for agricultural development if such society does not use as part of its name, or in connection with its business, the words “bank”, “banker” or “banking” and does not act as drawee of cheques.

In June, the Union Cabinet approved the Ordinance to bring 1,482 urban and 58 multi-state cooperative banks under the supervision of the RBI.

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