Banking Regulation (Amendment) Bill passed in Lok Sabha. How will it impact?

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

The Bill intends to empower co-operative banks to raise equity or unsecured debt capital from the public subject to prior RBI approval. The Bill will replace the Banking Regulation (Amendment) Ordinance, 2020.

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

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

2) If the RBI imposes moratorium on a bank, the lender bank can not grant any loans or make investments in any credit instruments during this period.

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. The banks may also issue unsecured debentures or bonds or similar securities with maturity of ten or more years to such persons.

4) 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.

5) RBI may supersede the board of directors of a multi-state co-operative bank for up to five years under certain conditions. For example; such cases where the public interest is involved and also in a case to protect depositors.

6) Earlier cooperative banks was not allowed to 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. This provision has now been deleted.

7) The changes will not affect the existing powers of the state registrars of co-operative societies under state laws.

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.

But, 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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