Banking Regulation (Amendment) Bill, 2020

The Parliament had recently passed the Banking Regulation (Amendment) Bill, 2020

The Reserve Bank of India through its notification made on 11th November 2020 had published the Reserve Bank of India General (Amendment) Regulations, 2020 in order to further amend the Reserve Bank of India General Regulations, 1949.

The Amendment had been brought under regulation 22 which deals with an annual statement of accounts in which the central board will cause the books of the Bank to be balanced on the last working day of the month of March in every year and the annual accounts will be set out as a balance sheet as well as an income statement comprising the particular as stated in the notification.

Main Objective:

The Banking Regulation (Amendment) Bill, 2020 pursues to amend the Banking Regulation Act, 1949 in order to bring the cooperative banks under the supervision of the Reserve Bank of India. 

The bill had replaced an ordinance that was issued on 26th June 2020. The Banking Regulation Act, 1949 controls the functioning of banks and provides details on several aspects for example licensing, management as well as operations of banks.

The Banking Regulation (Amendment) Bill, 2020 has been passed in a bid towards protecting the interest of the depositors. As per the amendment bill, multi-state cooperative banks along with the urban cooperative banks shall be brought under the supervision of the Reserve Bank of India. 

The major highlights of the Banking Regulation (Amendment) Bill, 2020:

• According to the Act, the Reserve Bank of India may, after placing a bank under the moratorium, would make a scheme for reconstruction or amalgamation of the bank in order to secure its proper management, or in the interest of depositors, the general public, or the banking system.

• The Amendment Bill also allowed the Reserve Bank of India to start a scheme for reconstruction or amalgamation without imposing a moratorium. In case a moratorium is been imposed, the Bill stated that the banks cannot grant any loans or make investments in any credit instruments at the time of the moratorium. 

• Furthermore, the bill provided that a co-operative bank might issue equity, preference, or special shares on face value or at a premium towards its members or to any other individual residing within its extent of the operation. It might also issue unsecured debentures or bonds or similar securities with maturity of 10 or more years to such individuals. Such issuance would be subjected to the prior support of the Reserve Bank of India.

•  According to the bill, no individual would be entitled to demand payment towards surrender of shares issued to him through a co-operative bank. Furthermore, a co-operative bank cannot lessen or withdraw its share capital, except as stated by the Reserve Bank of India.

• Under the provisions of the bill, the Reserve Bank of India might exempt a cooperative bank or a class of cooperative banks from some provisions of the Act by notification. These provisions are related to restrictions of some types of service, qualifications of the Board of Directors as well as the appointment of a chairman. However, the time period and the conditions for the exemption shall be stated by the Reserve Bank of India.

• As per the bill, the co-operative banks cannot hire someone who is insolvent or was convicted of a crime concerning moral turpitude as Chairman. The Reserve Bank of India would have the control to remove the Chairman if he is not suitable and proper and can appoint a suitable individual if the bank doesn’t do so.

• Furthermore, the Board of Directors should have at least 51% of members with special knowledge or skill in areas for example accountancy, banking, economics, or the law. The Reserve Bank of India might direct a bank towards reconstituting its Board if it doesn’t follow the requirements. If the bank doesn’t conform, the Reserve Bank might remove individual directors and employ fit persons. The Act also stated that the RBI might supersede the Board of Directors of a multi-state co-operative bank for up to 5 years under some conditions.  The Bill also stated that if a co-operative bank is registered with the Registrar of Co-operative Societies of a state, the Reserve Bank of India might supersede the Board of Directors by having a consultation with the concerned state government, looking for their comments within such period as stated by it.

• The bill also excluded some provisions from the Act, out of which one of the excluded provisions was about restraint on a co-operative bank from giving away any loans or advances on the security of its own shares. 

• The bill forbids the banks from giving way unsecured loans or advances towards its directors and private corporations where the directors of the bank or the chairman are an interested party. 

• The Act had stated circumstances under which unsecured loans or advances might be approved as well as the way in which the loans may be reported to the Reserve Bank of India. The Bill, however, had omitted this provision from the Act.

Conclusion:

Thus, some amendments were necessary in the said Act in order to provide better management as well as proper regulation of co-operative banks and to confirm that the activities of the co-operative banks are directed in a manner that safeguards the interests of the depositors, through confirming comprehensive banking through the Reserve Bank of India.

Author:

eStartIndia Team