Banking Regulaion Bill

The Banking Regulation (Amendment) Bill, 2020

INTRODUCED BY

Introduced by

Ms Nirmala Sitharaman

Minister of Finance

SYNOPSIS

The bill suggests bringing cooperative banks under the supervision of the RBI, to safeguard the interest of depositors. This will also keep a check on cooperative banks functioning, fraud committed by these banks and will further strengthen the laws and rules for operation.

HIGHLIGHT

Salient Points ()

Regulation on functioning of cooperative banks

To bill regulates the functioning of cooperative banks and provides details with on all the regulatory aspects

    • Granting of the licence
    •  Maintaining cash reserve
    •  Statutory liquidity and capital adequacy ratios
    • Inspection of these banks.

Role of RBI

  • Cooperative banks will be audited according to RBI’s norms
  • RBI has the right to supersede the board of the cooperative bank, in consultation with the state government, in case of problems.
  • Chief executive appointment will need permission from the banking regulator
  • The audit of these banks will be done as per the guidelines issued by the central bank

Recruitment for Cooperative banks

  • Management recruitment for these cooperative will be based on the set procedure and qualification  as per RBI guidelines
  • The suggested amendments will be applicable to all urban co-operative banks and multi-state cooperative banks.

Issue of Share Equity

A cooperative bank is allowed to issue equity, preference, or special shares on face value or at a premium to its members, via a public issue or private placement

Exceptions to the Bill

Proposed amendments are not applicable to Agriculture credit societies and Cooperative land mortgage banks,  whose primary objective to provide loan for agricultural development

 

BACKGROUND

Background Basics ()

  • The PMC (Punjab and Maharashtra cooperative) bank crisis which happened recently has triggered for stronger laws and rules.
  • PMC Bank fraud had put a lot of small depositors in difficulty

There is a need for better management and governance of these cooperative banks.

The number of frauds through these cooperative banks have seen a rise over the last few years.

The entire banking system needs clean-up due to financial irregularities and to restore the trust of depositors and investors in the banking system.

KEY STATS

Key Stats ()

Total cooperative banks in India

1540
1,482 urban and 58 multi-state cooperative banks

Number of account holders in cooperative banks

8.6 lakh

Total deposit in co-op banks

Rs 5 Lakh crore

Fraud amount reported during the last 5 years

Rs 220 crore

Number of fraud cases reported in the last 5 years

1,000

TIMELINES

14 Sep 2020
16 Sep 2020
22 Sep 2020

WHY (as per the govt.)

Salient Points ()

To provide more powers to the RBI for regulating cooperative banks

The bill seeks to strengthen cooperative banks by increasing professionalism, enabling access to capital, improving governance and "ensuring sound banking" through Reserve Bank of India.

To bring cooperative banks on par with developments in the banking sector to ensure that the affairs of the co-operative banks are conducted in a manner that protects the interests of the depositors.

MEDIA SAYING

VIDEOS

Videos ()

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FAQs

Cooperative banks are financial entities established on a co-operative basis and belonging to their members. This means that the customers of a cooperative bank are also its owners.

Cooperative banks are made to has been to serve the people and fill in the void in the absence of a formal banking sector in the past.

The higher management of the PMC bank has given a huge loan to the Housing Development and Infrastructure Ltd (HDIL) and its group entities. More than 70% of the credit facilities of the PMC bank have been transferred to HDIL and its associated companies.

And the bank allegedly favoured to the promoters of Housing Development and Infrastructure Ltd (HDIL) and allowed them to operate password-protected ‘masked accounts’.

The bank opened around 21,049 bogus accounts to conceal 44 loan accounts. The bank’s software was also tampered to conceal these loan accounts.

ORIGINAL BILL

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