LI Research Team
The banking system plays a major role in any country. Due to the deteriorating condition of the banking system in India, there have been amendments brought to the Banking Regulation Act, 1949. The Banking Companies Act 1949, came into force from 16 March 1949 and was changed to the Banking Regulation Act, 1949 from 1 March 1966.
Banking Regulation Act, 1949 was established to provide specific legislation containing comprehensive provisions, particularly to the business of banking in India. Further it aims to prevent bank failures by prescribing minimum capital requirements and to ensure the balanced development of banking companies.
Targeting this objective, and to overcome the challenges faced by the Indian banking system, President Shri Ram Nath Kovind has approved the Banking Regulation (Amendment) Ordinance, 2020, on 27 June 2020, to bring all urban cooperative banks and multi-state cooperative banks under the supervision of the Reserve Bank of India[1].
Amendment made under the Banking Regulation Act
The Ordinance amends the Banking Regulation Act, 1949 as applicable to Cooperative Banks. The Ordinance seeks to protect the interests of depositors and strengthen cooperative banks by improving governance and oversight by extending powers already available with 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[2]. The following amendments are bought to the act:
- Section 2 of the amendment provides for the substitution of section 3 wherein, the amendment 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 word “bank” or “banker” or “banking” and do not act as drawees of cheques.
- Issuance of shares and securities by Co-Operative Banks: The Bill envisages that co-operative banks may issue equity shares, special shares at face value or at a premium, preference shares to its members, or to any other person residing within their area of operations.
- The Bill states that no person shall be entitled to demand payment for the surrender of shares issued to him by the cooperative bank. In addition, a cooperative bank cannot withdraw or reduce its share capital except as directed by the RBI.
- Supervision of Board of Directors: The Act states that RBI can supersede the Board of Directors of the multi-state co-operative bank for up to five years with certain conditions (in the public interest or to protect depositors).
- 5. Power to give exemption to Co-Operative Banks: The bill states that the RBI may exempt co-operative banks from certain provisions of the Act through notification. These provisions are related to; employment, the qualification of the board of directors and, the appointment of a chairman. RBI will decide who will get relaxation in employment?
- 6. The Banking Regulation Act, 1949 states that co-operative banks cannot open a new place of business or change the location of the banks outside of the village, town, or city in which it is currently located without permission from RBI. The Banking Regulation (Amendment) Bill, 2020 discards this provision.[3]
Conclusion
The changes brought to the operations of the bank and bringing them into the ambit of the RBI can be considered as need of the hour not because it will reduce the appointments of the officer but would improve the working style of the banking system in India.
- Hemant Singh, What is the Banking Regulation (Amendment) Bill, 2020, (Aug 07, 2020, 09:20 PM), https://www.jagranjosh.com/general-knowledge/banking-regulation-amendment-bill-2020-1594617537-1. ↑
- Banking Regulation (Amendment) Ordinance 2020 promulgated by President, (Aug 07, 2020, 09:20 PM), https://abcaus.in/govt/banking-regulation-amendment-ordinance-2020-rbi-powers-co-operative-banks.html. ↑
- Supra note 1. ↑
