RBI’s power extension to restructure Cooperative banks through the New Banking Regulation (Amendment) Bill, 2020: Important notes

The government introduced the new Banking Regulation (Amendment) Bill, 2020, that intended to give the powers to restructure cooperative banks to the Reserve Bank of India. The power of RBI’s banking regulations will be extended to the cooperative banks after the ratification of the bill.

What is Banking regulation?

Banking regulation is a type of government regulation that is framed to bring market transparency between the banking institutions and the concerned individuals and corporations. It focuses on formulating certain requirements, restrictions, and guidelines.

Who is the regulator of the co-operative banks?

Presently, cooperative societies as well as the Reserve Bank of India regulate the co-operative banks. But after the bill is ratified RBI will have the control of the cooperative banks. But it will not affect the existing powers assigned with the state registrars of co-operative societies.

The bill seeks amendments to the Banking Regulation Act of 1949.

The bill will replace the Banking Regulation (Amendment) Ordinance, 2020 which was approved by the Union Cabinet in June 2020 when the Parliament was not in session.

What are the benefits of the new amendment for the co-operative banks?

  • Presently, the co-operative banks enjoy limited access to capital.
  • The bill will enable the co-operative banks to raise the money by public issues and private placements of equity, the preference shares as well as through unsecured debentures. But it needs the prior recommendation of RBI.

To remove the cap for the withdrawals by depositors and in order to smoothen the process of the lending operation of the bank, the bill recommended to empower RBI for amalgamation of banks.