Thursday, June 1, 2023
Support Our Journalism
HomeIndiaGovernanceLok Sabha passes Bill giving RBI more power over co-op banks, to...

Lok Sabha passes Bill giving RBI more power over co-op banks, to avoid PMC Bank-like situation

Finance Minister Nirmala Sitharaman said the Bill would protect depositors, but some opposition parties said the legislation would infringe on state powers.

Text Size:

New Delhi: The Lok Sabha Wednesday cleared a Bill that will empower the Reserve Bank of India to restructure distressed cooperative banks without placing them under moratorium.

The government and the central bank are hopeful that with these changes, the distress caused to bank customers could be minimised, as the RBI could restructure a financially weak cooperative bank without necessarily placing curbs on withdrawals.

The decision to empower the RBI was taken in the aftermath of the failure of the Punjab and Maharashtra Cooperative Bank. The troubles at PMC Bank first came to the fore in September 2019, when the RBI placed it under moratorium, and put withdrawal caps, causing angst among depositors.

The amendments to the Banking Regulation Act, 1949, were introduced by Finance Minister Nirmala Sitharaman in the Lok Sabha Monday. The amendment will replace an ordinance enacted in June, and includes further changes to those initially proposed in March, which could not be passed then.

The Banking Regulation (Amendment) Bill, once enacted, will be applicable to primary cooperative banks or urban cooperative banks, state cooperative banks and central co-operative banks, but not to primary agricultural credit societies (PACS) and co-operative societies whose main business is to provide long-term finance for agricultural development. It gives the RBI powers to supersede boards of the banks.

Also read: Lok Sabha passes bill to reduce MPs’ salaries by 30% for a year

Protecting depositors

In the Lok Sabha debate on the bill, Sitharaman said the primary aim of the Bill is to protect the interests of the depositors. She pointed out how depositors have faced hardships in the last two years, and how the PMC Bank issue has still not been resolved.

“With the amendment, the RBI will get powers to address these problems,” she said.

Sitharaman defended the government’s decision to bring in an ordinance, pointing out that the health of the cooperative banks was becoming “delicate”. She added that 277 urban cooperative banks are reporting losses and 105 urban cooperative banks are not meeting even the minimum regulatory capital requirements.

Gross NPAs of these banks have also increased to over 10 per cent as of March 2020, from 7 per cent in March 2019.

With the amendments, the provisions applicable for commercial banks will also be applicable to cooperative banks, ensuring better governance and regulation of the latter, the finance minister said.

Bill infringes states’ rights, says opposition

Opposition parties like the Congress, Dravida Munnetra Kazhagam, Communist Party of India (Marxist) and the Trinamool Congress opposed the Bill in the debate.

Congress MP Manish Tewari pointed out that the provisions of the bill are a “frontal assault on the federal structure of the Constitution”, as most of the cooperative banks are under the purview of the state registrars of societies. He said the provisions will cause “utter mayhem in the agricultural space” because of the close linkages between PACS and district cooperative banks.

Tewari also pointed out that the record of RBI to pre-empt frauds and instances of malfeasance has not been good.

“Let’s leave the cooperative sector alone. If there have been instances of malfeasance, there have been successful stories too,” he said.

Saugata Roy, Trinamool Congress MP, said the legislation will override the powers of registrar of state cooperative societies. He added that the appointment of RBI as a regulator is the “wrong step”, as it has not proven to be the best regulator.

“We cannot shortchange cooperative banks that are functioning well, like those in south India,” he said.

Opposition leaders also pointed out that the provisions in the Bill that allow for cooperative banks to raise capital by an equity or preference share route are in violation of the spirit of a cooperative society set up where one member gets one vote.

Responding to concerns raised by the opposition, Sitharaman said the RBI has been regulating cooperative banks since 1965. She also countered suggestions that the Centre is trying to encroach on states’ powers, pointing out that banking is under the Union list in the Constitution, and thus, a consultation with the states is not necessary.

Sitharaman also said not a single commercial bank has gone into liquidation in the last two decades, but many cooperative banks have been delicenced during this period, and added that there will be no change in the voting pattern.

Also read: Opposed by opposition & BJP ally SAD, bill to replace farm ordinance passed in Lok Sabha


Subscribe to our channels on YouTube & Telegram

Support Our Journalism

India needs fair, non-hyphenated and questioning journalism, packed with on-ground reporting. ThePrint – with exceptional reporters, columnists and editors – is doing just that.

Sustaining this needs support from wonderful readers like you.

Whether you live in India or overseas, you can take a paid subscription by clicking here.

Support Our Journalism

Most Popular