Why in News ?

The Banking Regulation (Amendment) Bill, 2020 passed in the Lokh Sabha by replacing the The Banking Regulation (Amendment) Ordinance, 2020.

• The Bill amends the Banking Regulation Act, 1949.
• Act regulates the functioning of banks and provides details on various aspects such as licensing, management, and operations of banks.
• To address weaknesses in cooperative banking sector,

Features of the Bill ?

• Bill allows the RBI to initiate a scheme for reconstruction or amalgamation of a bank without placing it under moratorium.
  • Providing the power to make a scheme for reconstruction or amalgamation without imposing moratorium.
  • Moratorium period certain time during which the borrower do not have to pay an EMI on the loan taken. But interest for the period is calculated.
  • Here the Banks placed under moratorium do not face any legal action for up to six months.
    • Banks cannot grant any loans or make investments in any credit instruments during the moratorium.
• Co-operative banks will be allowed to issue equity, preference, or special shares on face value or at a premium to its members, or to any other person residing within their area of operations.
  • No person will be entitled to demand payment towards surrender of shares issued to him by a co-operative bank.
• Management Qualifications :
  • Co-operative banks Cannot employ as Chairman, someone who is insolvent or has been convicted of a crime involving moral turpitude, among other restrictions.
    • RBI may remove the Chairman if he is not fit and proper and appoint a suitable person if the bank does not do so.
  • Board of Directors must have at least 51% of members with special knowledge or experience in areas such as accountancy, banking, economics or law
• Exemption Powers :
  • RBI may exempt a cooperative bank or a class of cooperative banks from certain provisions of the Act through notification.
  • The time period and conditions for the exemption will be specified by RBI.
• Act states that RBI may supersede the Board of Directors of a multi-state co-operative bank for up to five years under certain conditions.
• Exclusion Details :
  • Act does not apply to certain co-operative societies such as primary agricultural credit societies and co-operative land mortgage banks.
  • The changes will not affect the existing powers of the state registrars of co-operative societies under state laws.
  • 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.

Cooperative Banks

• There are 1,540 cooperative banks with a depositor base of 8.60 crore having total savings of about ₹5 lakh crore.
• Major Issues :
  • The financial status of 277 urban cooperative banks is weak.
  • 105 cooperative banks are unable to meet the minimum regulatory capital requirement.
  • 47 banks have net worth in negative
  • 28 urban cooperative banks have more than 15% gross NPA ratio.
• How the Amendment Helpful ?
  • The amendment allows cooperative banks to raise money via public issues and private placements of equity or preference shares as well as unsecured debentures, with the central’s bank’s nod.
  • Currently, access to capital for cooperative banks is limited.

Source : The Hindu

Topic

GS II : Government policies and interventions for development in various sectors and issues arising out of their design and implementation

Current Affairs Compilation : 17 September 2020