New ordinance brings cooperative banks directly under the purview of RBI

The Banking Regulation (Amendment) Ordinance 2020 will safeguard the interest of about 8.6 crore cooperative bank depositors across the country.

New ordinance brings cooperative banks directly under the purview of RBI

The central cabinet passed an ordinance on June 24, bringing all cooperative banks under the central bank's oversight. This would mean better supervision, tighter compliance and increased customer confidence for about 1,482 cooperative and 58 multi-state banks.

The banks will come under RBI supervision with immediate effect from the date of the President’s approval on the ordinance as per Information and Broadcasting Minister Prakash Javadekar. 

Related: Payment banks are different from regular banks 

What has changed?

Traditionally the primary oversight for the functioning of cooperative banks was entrusted to the registrar of societies, even though RBI did regulate their banking function. However they have been a weak link in the financial system, and the inadequacies have been brought to the front after a multi-crore scam of the multi-state Punjab and Maharashtra Cooperative Bank was unearthed.

To safeguard the interest of about 8.6 crore depositors, the Union Cabinet proposed an amendment to the Banking Regulations Act to bring in the Banking Regulation (Amendment) Ordinance 2020 that empowers the RBI to manage cooperative banks, and supersede the Board of 'Cooperative Banks' for up to five years after consultation with the concerned state government.

The ordinance also allows for amendment of Section 45 of Banking Regulations Act that will enable the restructuring or amalgamation of a banking entity to safeguard the interest of the public, depositors and the banking system.

Related: NBFCs and banks: How are they different? 

What does not change?

This amendment does not apply to Primary Agricultural Credit Societies (PACS) whose primary business is to finance long-term agricultural development or cooperative societies that do not use the terms ‘bank’, ‘banker’, or ‘banking’, and do not act as drawees of cheques.

“Cooperative banks are custodians to deposits amounting to 4.84 lakh crore and depositors can be assured that their funds are safe,” says Mr Javadekar. What happens to your money if RBI puts restrictions on your bank?


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