LS passes Banking Regulation (Amendment) Bill, 2020
The passage of the Bill to amend the Banking Regulations Act will enhance the Reserve Bank of India’s power to supervise cooperative banks. It will help protect the interests of depositors and strengthen banking entities. The Lok Sabha gave nod to the Bill on Wednesday. The Bill will become law after the President signs it and is notified.
"THE GROSS NPA RATIO (IN CO-OPERATIVE BANKS) INCREASED FROM 7.27% IN MARCH 2019 TO OVER 10% IN MARCH 2020. THEREFORE IT WAS FELT THAT TO PROTECT DEPOSITORS' INTEREST WE SHOULD HAVE THE ORDINANCE BROUGHT IN... WE ARE NOT DOING ANYTHING TO TOUCH STATE COOPERATIVES, OR PRIMARY AGRICULTURAL CREDIT SOCIETIES" NIRMALA SITHARAMAN,
Finance Minister
The passage of the Bill to amend the Banking Regulations Act will enhance the Reserve Bank of India’s (RBI) power to supervise cooperative banks. It will help protect the interests of depositors and strengthen banking entities.
The government introduced the Bill in the Lok Sabha replacing the ordinance in the current monsoon session. The Lok Sabha gave nod to the Bill on Wednesday. The Bill will become law after the President signs it and is notified. The ordinance was promulgated by the government on June 26.
The RBI had already started work on increasing oversight of urban cooperative banks (UCBS).
Co-operative banks are exempted from several provisions of the Banking Regulation Act, 1949. The Bill applies some of these provisions to them, making their regulation under the Act similar to that of commercial banks.
The Bill intends to empower co-operative banks to raise equity or unsecured debt capital from the public subject to RBI approval.
Also, it empowers the RBI to prescribe conditions on and qualifications for employment
of chairman of co-operative banks. The RBI may remove a chairman not meeting the ‘fit and proper’ criteria and appoint a suitable person.
The apex bank may supersede the board of directors of a co-operative bank after consultation with the state government. The Bill allows the RBI to undertake reconstruction or amalgamation of a bank without imposing a moratorium.
According to the RBI annual report for 2019-20, the supervisory action framework (SAF) was reviewed. Now, UCBS now have to report large exposures to the Central Repository of Information on Large Credits (CRILC). Commercial banks already feed information on large corporate exposures to CRILC.
As a step to improve the quality of working in UCBS, the RBI issued guidelines on constituting board of management (BOM) and developing a Central Fraud Registry (CFR). It also came up with norms for a comprehensive cyber security framework for UCBS.
The banking regulator initiated steps to establish the umbrella organisation for UCBS.
A major policy drive during the year was towards amalgamation and consolidation of cooperative banks.
The financial stability report (July 2020) said the performance of scheduled urban cooperative banks (SUCBS) broadly remained stable between September 2019 and March 2020. At the system level, the capital adequacy ratio (CAR) of SUCBS remained at 9.8 per cent for both the quarters.
Their gross non-performing assets declined from 10.5 per cent of gross loans and advances to 9.9 per cent. Provision coverage ratio (PCR) increased from 40.9 per cent to 61.4 per cent during this period.