NIRMALA SITARAMAN LAW INSIDER IN

Banking Regulation Amendment Bill introduced in Parliament

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Finance Minister Nirmala Sitharaman introduced the Banking Regulation (Amendment) Bill, 2020 in the Lok Sabha. The new Banking Regulation Amendment Bill aims to bring co-operative banks under the supervision of the Reserve Bank of India (RBI).

The bill will also permit the RBI to initiate a scheme for reconstruction or amalgamation of a stressed lender without imposing a moratorium Banking Regulation (Amendment) Bill, 2020 are being amended to provide 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.

The bill proposes amendments to the Banking Regulation Act, 1949, and will replace the Banking Regulation (Amendment) Ordinance, 2020.

The Ministry of Finance made it clear Banking Regulation bill not to apply on primary agricultural credit societies and co-operative societies whose primary object and principal business is of providing long term finance for agricultural development.

The bill also states that if a co-operative bank is registered with the Registrar of Co-operative Societies of a state, the central bank may supersede the lender’s board after consultation with the concerned state government.    

Further amendments were proposed to be made in Section 45 of the Act to enable the Reserve Bank of India to make a scheme to protect the interests of the public, the banking system, depositors or to secure the banking company’s proper management, without first making an order of moratorium so as to avoid disruptions in the financial system The economic situation arising from the COVID-19 pandemic had increased the stress in both co-operative banks and banking companies, there was an immediate need for legislation in this regard.

As Parliament was not in session, the Banking Regulation (Amendment) Ordinance, 2020 was promulgated by the President of India on the 26th day of June, 2020 under clause (1) of Article 123 of the Constitution.  

Salient Features

1. A co-operative bank may issue equity, preference, or special shares on face value or at a premium to its members, via a public issue or private placement  

2. The RBI has the authority to exempt a co-operative bank or a class of co-operative banks from certain provisions of the Act.

3. The RBI may supersede the board of a multi-state co-operative bank for up to five years under certain conditions.