Cooperative Banks Now Under RBI's Watch, Centre Approves Amendment To Banking Regulation Act

The Union Cabinet on Wednesday approved amendments to the Banking Regulation Act permitting the Reserve Bank of India (RBI) to maintain greater control over co-operative banks. The amendments made to the Act will apply to urban co-operative banks and multi-state co-operative banks.

Information and Broadcasting Minister, Prakash Javadekar, informed that the administrative role will continue to be managed by Registrar of Co-operative. At present, co-operative banks are governed under the control of co-operative societies and the RBI.

The roles of co-operative societies include incorporation, registration, management, recovery, audit, supersession of board of directors and liquidation and the central bank ensures effective regulatory functions.

Javadekar said that there are 1,540 cooperative banks with 86 million depositors who have put money totalling around ₹5 trillion and the proposed amendment will protect the depositors and build faith.

This decision comes in the backdrop of the recent Punjab and Maharashtra Cooperative Bank crisis and to ensure better regulation.

In September, the RBI had removed the PMC Bank's board for six months after it found under-reporting of loans. Cash withdrawals were restricted at ₹1,000 per account for six months but subsequently increased to ₹50,000 as the depositors protested resulting in several deaths.

Such banks will also be audited as per RBI's norms, the minister said.

As per the amendments, the recruitment for the banks' management will be based on certain qualifications and appointment of the chief executive officer will require prior permission from the banking regulator, as in case of other commercial banks.

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 co-operative bank is under stress, the minister added.

All these changes will come into place in a phased manner.

"To strengthen the co-operative 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," finance minister Nirmala Sitharaman had said in her Union Budget speech on February 1.

Urban co-operative banks reported nearly 1,000 fraudulent cases worth more than ₹220 crores in the last five fiscals, RBI had said in its recent report.

The minister also said that the finance ministry will introduce the bill in the Parliament in the next few days.

Also Read: After PMC, RBI Cracks Whip On Bengaluru Bank, Restricts Withdrawal To Rs 35,000