Ordinance on co-op banks gets Prez nod

President Ram Nath Kovind has promulgated an Ordinance to give the Reserve Bank of India more supervisory powers over urban and multi-state co-operative banks. It allows the RBI to frame a reconstruction or amalgamation scheme for all banks “even without making an order of moratorium, so as to avoid disruption of the financial system”.

President Ram Nath Kovind has promulgated an Ordinance to give the Reserve Bank of India (RBI) more supervisory powers over urban and multistate co-operative banks.

Apart from the regulatory changes related to co-operative banks, one of the key changes the Ordinance makes in the existing law, the Banking Regulation Act, 1949, is to allow the RBI to frame a reconstruction or amalgamation scheme for all banks “even without making an order of moratorium, so as to avoid disruption of the financial system”, according to a press statement by the finance ministry on Saturday.

The previous law required the RBI has to impose restrictions on lending and withdrawal activities before it could frame a revival scheme for commercial and co-operative banks.

In March, the RBI had imposed a two-week moratorium on private lender YES Bank, restricting withdrawals to ~50,000 per depositor, while simultaneously appointing an administrator and framing a revival plan for the bank with the help of the central government. This created panic among the depositors who saw the development as a sign that their money was not safe and rushed to withdraw their money. Moratoriums in the past have seen similar reactions. The Ordinance also empowers the RBI to frame an enforceable reconstruction scheme for co-operative banks, just like it does in the case of commercial banks.

It further allows the RBI to frame governance norms for co-operative banks akin to all commercial banks.

“The Ordinance seeks to protect the interests of depositors and strengthen co-operative banks by improving governance and oversight by extending powers already available with the RBI in respect of other banks to co-operative banks as well for sound banking regulation, and by ensuring professionalism and enabling their access to capital,” the statement said.

The amendments, however, will not apply to primary agricultural credit societies or co-operative societies whose primary object and principal business is long-term finance for agricultural development, and which do not use the word “bank” or “banker” or “banking” in their name.