Banking Regulation (Amendment) Bill: Finance minister Nirmala Sitharaman on Monday introduced Banking Regulation (Amendment) Bill, 2020 in the Lok Sabha. The law seeks to protect the interest of the depositors by bringing co-operative banks under the regulatory framework of the Reserve Bank of India (RBI).
With the amendments, RBI will be able to undertake a scheme of amalgamation of a bank without placing it under moratorium. Earlier, if a bank was placed under the moratorium, it not only limited withdrawals by depositors, but also disrupted a bank’s lending operations.
“Further amendments were proposed to be made in section 45 of the Act to enable the Reserve Bank of India to make a scheme to protect the interests of the public, the banking system, depositors or to secure the banking company’s proper management, without first making an order of moratorium so as to avoid disruptions in the financial system,” according to the statement of objects and reasons mentioned in the bill introduced in the Lok Sabha.
Opposition members, including Shashi Tharoor of the Congress and Saugata Roy of the Trinamool Congress, opposed the bill, accusing the Centre of encroaching on the rights of states.
Rejecting the charge, Sitharaman asserted that state cooperative laws are not being touched and that the proposed law seeks to bring these banks with the same regulations that are applicable to other banks. It is applicable to those cooperative banks which deal with “bank, banker and banking,” she said, adding that as many as 277 urban cooperative banks have reported losses.
Tharoor said the bill is an encroachment on federalism, while Roy claimed it attacks “state rights”. Ruling party members also opposed Roy’s personal remarks targeting Sitharaman, with Parliamentary Affairs Minister Pralhad Joshi demanding an apology. Speaker Om Birla said Roy’s comments have been expunged.
Sitharaman withdrew a bill to amend the Act that was introduced in the Lok Sabha in March before introducing the new bill with certain changes on Monday. “I wish to move for leave to withdraw a bill further to amend the Banking Regulation Act 1949,” she said.
The bill that was introduced in March could not be passed and in June, the ordinance was promulgated. “Yes, we did come up with the Bill (in March 2020) and subsequently an ordinance was passed because the session was not on to consider the bill, discuss the bill and then pass it… ordinance became a necessity,” Sitharaman said.
“We were going through pandemic and there was stress in several cooperative banks and as a result of which it was felt that till we clear the bill there should not have a situation where many of the cooperative banks should suffer and therefore we brought in an ordinance in place with the essential features of the bill which was tabled in the house in March,” she noted.
The minister also said the new bill essentially has all the features of the original bill but not exactly the same. N K Premchandran (RSP) opposed the withdrawal of the earlier bill. “You are introducing a bill. Subsequently, you are promulgating an ordinance and after the promulgation of ordinance you are again coming to the House and seeking the leave of the house to withdraw the bill… this is a clear thing of misuse of constitutional power,” he said.
After promulgation of the ordinance in June, an official statement had said it seeks to protect the interests of depositors and strengthen cooperative 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.
The Banking Regulation (Amendment) Bill does not affect existing powers of the State Registrars of Co-operative Societies under state co-operative laws, it said. The amendments also do not apply to Primary Agricultural Credit Societies (PACS) or co-operative societies whose primary object and principal business is long-term finance for agricultural development, and which do not use the words “bank”, “banker” or “banking” and do not act as drawees of cheques, as per the statement.
“The ordinance also amends Section 45 of the Banking Regulation Act, to enable the making of a scheme of reconstruction or amalgamation of a banking company for protecting the interest of the public, depositors and the banking system and for securing its proper management, even without making an order of moratorium, so as to avoid disruption of the financial system,” it said. The decision also came against the backdrop of scams at cooperative banks, including at the Punjab and Maharashtra Cooperative (PMC) Bank that came to light last year.