AMENDMENT IN BANKING REGULATION LAW

PMC Bank

With an aim to avoid PMC-like mess, Cabinet clears amendments to banking regulation law.   This was necessitated since Urban cooperative banks (UCBs) reported nearly 1,000 cases of fraud worth more than ₹220 crore in the last five fiscals, according to RBI.

  • The Union Cabinet approved amendments to the Banking Regulation Act to empower the central bank to have greater control over cooperative banks, in order to prevent malpractices and ensure better regulation.
  • The Ministry of Information and Broadcasting further adds that administrative role will continue to be managed by Registrar of Cooperatives.
  • At present, cooperative banks are governed by dual control of cooperative societies as well as the Reserve Bank of India (RBI).
  • While the role of cooperative society includes incorporation, registration, management, recovery, audit, supersession of board of directors and liquidation, RBI’s role is responsible for regulatory functions.
  • It is informed that these amendments will apply to urban co-operative banks and multi-state cooperative banks.
  • The Ministry official release adds that in India, there are 1,540 cooperative banks with 8.6 crore depositors’ money, with around ₹5 lakh crore deposits and the proposed amendment would protect the depositors.
  • These banks will be subjected to audit as per RBI’s norms.
  • Following the amendments, the recruitment for the banks’ management will be based on certain qualifications and appointment of the Chief Executive Officer will also require prior permission from Reserve Bank of India, as in case of commercial banks.
  • Moreso, the audit of such banks will be as per the RBI guidelines and the central bank can supersede the board, in consultation with the State Government, if any cooperative bank is under stress.
  • All these steps will be implemented by the central bank in a phased manner.

Background:

  • The Government’s move towards amending the banking regulation law to strengthen the cooperative banks comes months after Punjab Maharashtra Bank (PMC) collapsed.
  • In September, the Reserve Bank of India had superseded the lender’s board for six months after finding under-reporting of loans.
  • Cash withdrawals were capped at ₹1,000 per account for six months, but subsequently relaxed to ₹50,000 as panic spread among depositors.
  • In the Budget speech, the FM had pointed out that in order to strengthen the cooperative banks, amendments to the Banking Regulation Act are proposed for increasing professionalism, enabling access to capital and improving governance and oversight for sound banking through the RBI.
  • A PTI report, citing the RBI, said urban cooperative banks (UCBs) reported nearly 1,000 cases of fraud worth more than ₹220 crore in the last five fiscals.
  • The Government did not release the details of the amendments. The minister said that the finance ministry will introduce the bill in the Parliament in the next few days.
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