All Co-Operative Banks In India Will Come Under RBI ‘Supervision’; Is This Regulation?

The Lok Sabha passed an amendment to the Banking Regulation Act to bring cooperative banks under the supervision of the RBI on Wednesday, in a bid to protect the interest of depositors.

Why Do We Need A New Bill?

Basically, the act comes in as a backdrop of the PMC Bank scam.

The new bill seeks to strengthen cooperative banks by increasing their professionalism, enabling access to capital, improving governance and ensuring sound banking through the RBI.

The proposed law is expected to enforce banking regulation guidelines of the RBI in cooperative banks.

Here it is noteworthy that the administrative issues will still be guided by the Registrar of Cooperatives under this bill.

How Would This Affect?

The Finance minister Nirmala Sitharaman said that the legislation empowers the central bank to regulate only the banking activities of co-operatives.

It is not applicable to a primary agricultural credit society or a co-operative society providing finance for agricultural development, clarified by Sitharaman.

Further, she said, the Bill is not to “undermine” the importance of co-operatives.

While answering to queries raised by members, she said, “But, if a co-operative is performing banking functions, there is a need to regulate it… so that it functions professionally,”.

Moving forward, this Banking Regulation (Amendment) Bill, 2020 replaces an ordinance that was issued on June 26.

This legislation is for depositors’ safety and not for undermining powers of the Registrar of Cooperative Societies, Sitharaman said, while debating on the bill.

According to her, Powers of the Registrar of Cooperative Societies have not been encroached upon but the banking activity of cooperatives will be regulated by the Reserve Bank of India (RBI), she said.

The main aim of this latest bill is to bring cooperative banks on par with developments in the banking sector through better management and proper regulation which further protects the interest of depositors as well.

The bill has a great significance as we have all seen the scam in the Punjab and Maharashtra Cooperative (PMC) Bank.

These scams have affected lakhs of customers who have been facing difficulty in withdrawing their money due to restrictions imposed by the RBI.

In consumers’ interest, Sitharaman said, “We don’t undermine anybody, but if depositors are suffering we have to stand with them…We are bringing this law to safeguard the interest of depositors,”.