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Banking Regulation (Amendment) Bill, 2020: Opposition MPs say it will destroy cooperative sector

Banking Regulation (Amendment) Bill, 2020: Opposition MPs say it will destroy cooperative sector

New Delhi, Sep 16 (UNI) Union Finance Minister Nirmala Sitharaman on Wednesday said the Banking Regulation (Amendment) Bill, 2020 has been brought to protect the interest of depositors.



Moving the Bill for passing and consideration in the Lok Sabha, she said that in the past two years, depositors of co-operative and small banks have been facing problems and hardships, the amendment is being brought to protect their interests and ensure better governance of cooperative depositors.



"During the Budget session we could not get the Bill passed, so the ordinance had to be brought in, as financial health of these co-operative banks had become grim,' she said.



Opposing the Bill, Manish Tewari of the Congress urged the Finance Minister to withdraw the Bill and bring a new Bill with amendments. He said the purpose of the ordinance was to bring district/urban co-operative banks under Reserve Bank of India (RBI) regulation. ``Leave the co-operative sector alone,' he said.

The Banking Regulation (Amendment) Bill, 2020 was introduced in Lok Sabha on September 14. It seeks to amend the Banking Regulation Act, 1949. The Act regulates the functioning of banks and provides details on various aspects such as licensing, management, and operations of banks. The Bill is aimed at replacing the Banking Regulation (Amendment) Ordinance, 2020 promulgated on June 26, 2020. The Act does not apply to certain co-operative societies such as primary agricultural credit societies and co-operative land mortgage banks. The Bill amends this to state that the Act will not apply to primary agricultural credit societies and co-operative societies whose principal business is long term financing for agricultural development. Further, these societies must not use the words ‘bank’, ‘banker’ or ‘banking’ in their name or in connection with their business, or act as an entity that clears cheques. Under the Act, RBI may, after placing a bank under moratorium, prepare a scheme for reconstruction or amalgamation of the bank to secure its proper management, or in the interest of depositors, general public or the banking system. Banks placed under moratorium do not face any legal action for up to six months. Further, banks cannot make any payment or discharge any liabilities during the moratorium. The Bill allows RBI to initiate a scheme for reconstruction or amalgamation without imposing a moratorium. If a moratorium is imposed, in addition to the existing restrictions, the Bill adds that banks cannot grant any loans or make investments in any credit instruments during the moratorium. The Bill provides that a co-operative bank may issue equity, preference, or special shares on face value or at a premium to its members or to any other person residing within its area of operation. Further, it may issue unsecured debentures or bonds or similar securities with maturity of ten or more years to such persons. Such issuance will be subject to the prior approval of the RBI, and any other conditions as may be specified by RBI. The Bill states that no person will be entitled to demand payment towards surrender of shares issued to him by a co-operative bank. Further a co-operative bank cannot withdraw or reduce its share capital, except as specified by the RBI.

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