Ordinance to bring co-op banks under RBI supervision
Central bank gets more powers
The Union government on Wednesday decided to take the Ordinance route to give more powers to the Reserve Bank of India (RBI) to supervise co-operative banks, akin to commercial banks.
The RBI will get more auditory and managerial powers over the 1,482 urban co-operative banks and 58 multi-state co-operative banks after the Ordinance is cleared by the President to become a law. The Ordinance will, however, need approval from Parliament within six months of becoming a law.
“The urban co-operative and multi-state co-operative banks will come under the supervisory control of the RBI. The supervisory norms that apply to commercial banks will also be applicable to them. The move will help keep the depositors’ money safe,” Information and Broadcasting Minister Prakash Javadekar said in a press briefing.
In February, the government had said the audit of such co-operative banks will be in accordance with the RBI regulations, and the best management practices laid down by the regulator will also apply to them. The RBI will get powers to supersede the board of co-operative banks.
The central bank will be allowed to set the minimum level of qualifications for the board members of such lenders, which will need the consent of the regulator to appoint chief executive officers.
The managements of such banks are elected through co-operative bodies at present and the RBI has limited control over their appointments.
There are 86 million depositors with deposits worth ~4.84 trillion with such banks.
“During the process of restructuring (of such banks), it is seen that the depositors face troubles and line up in front of the banks. This will not happen going ahead,” Javadekar said.
The Cabinet had approved the Banking Regulation Amendment Bill, 2020, in February to propose similar changes, but the government has now decided to take the Ordinance route to expedite the process.
Right now, while the registrars under the state and central governments have control over incorporation, registration, management, recovery, audit, supersession of board of directors and liquidation, the RBI is “invested with regulatory functions”, according to the RBI’S Trends and Progress Report 2018-19.