Rajya Sabha Passed Banking Regulation Amendment Bill, 2020 (Download PDF)

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Banking Regulation Amendment Bill 2020

  • Recently, Rajya Sabha passed Banking Regulation Amendment Bill, 2020 to bring cooperative banks under RBI supervision.
  • The central government amended the Banking Regulation Act, 1949 in the wake of deteriorating condition of cooperative banks in the country.
Banking Regulation Amendment Bill 2020

Details About Banking Regulation Amendment Bill, 2020

  • The Banking Regulation act regulates the functioning of banks and provides details in various aspects such as
    • Licensing
    • Management
    • Operations of banks
  • The bill replaces the Banking Regulation (Amendment) Ordinance, 2020 promulgated on June 26,2020.
  • The act does not apply to certain co-operative societies such as
    • Primary agricultural credit societies
    • Co-operative land mortgage banks
  • The Bill amends this to state that the act will not apply to
    • Primary Agricultural Credit Societies
    • Co-operative societies whose principal business is long term financing for agricultural development
  • These societies must not use the words ‘banks,’ ‘banker’ or ‘banking’ in their name or in connection with their business, or act as an entity that clears cheques.
  • Under the act, RBI may, after placing a bank under moratorium, prepare a scheme for reconstruction or amalgamation of the bank to secure its proper management, or in the interest of its depositors, general public, or the banking system.
  • Banks placed under moratorium do not face any legal action for up to six months.
  • Banks cannot make any payment or discharge any liabilities during the moratorium.
  • The Bill allows RBI to initiate a scheme of reconstruction or amalgamation without imposing a moratorium.
  • A co-operative bank may issue equity, preference, or special shares on face value or at a premium to its members or to any other person residing within its area of operation.
  • It may also issue unsecured debentures or bonds or similar securities with maturity of ten or more years to such persons.
  • This issuance will be subject to the prior approval of the RBI, and any other conditions as may be specified by RBI.
  • No person will be entitled to demand payment towards surrender of shares issued to him by co-operative bank cannot withdraw or reduce its share capital, except as specified by the RBI.
  • The Bill applies certain provisions of the act to co-operative banks in relation to its management.
  • Under the Bill, co-operative banks cannot employ as Chairman, someone who is insolvent or has been convicted of a crime involving moral turpitude, among other restrictions.
  • RBI may remove the Chairman if he is not fit and proper and appoint a suitable person of the bank does not do so.
  • The Board of Directors must have at least 51 % of members with special knowledge or experience in areas such as
    • Accountancy
    • Banking
    • Economics
    • Law
  • RBI may direct a bank to reconstitute its Board if it does not conform to the requirements.
  • If the bank does not comply, RBI may remove individual directors and appoint suitable persons.
  • The Bill states that RBI may exempt a cooperative bank or a class of cooperative banks from certain provisions of the Act through notification.
  • These provisions relate to
    • Restrictions of certain type of employment
    • Qualification of the Board of Directors
    • Appointment of a Chairman
  • The time period and conditions for the exemption will be specified by RBI.
  • The Act states that RBI may supersede the Board of Directors of a multi-state co-operative bank for up to five years under certain conditions.
  • These conditions include cases where it is in the public interest for RBI to supersede the Board, and to protect depositors.
  • The Bill adds that in case of a co-operative bank registered with the Registrar of Co-operative Societies of a state, RBI may supersede the Board of Directors after consultation with the concerned state government, seeking their comments within such period as specified by it.

- Published/Last Modified on: March 10, 2021

Economy, Bills, Committees/Govt. Bodies

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