Co-operative banks in India to face regulatory changes

The bill aims to bring the co-operative banks on par with the developments in the banking sector

The Indian parliament is debating a bill to amend the Banking Regulation Act, which would give more power to the Reserve Bank of India (RBI) to regulate multi-state co-operative banks.

Co-operative banks are currently under the dual control of the Registrar of Cooperative Societies and RBI.

Introduced by finance minister Nirmala Sitharaman, the Banking Regulation (Amendment) Bill 2020 would see the registrar continue to deal with administrative issues while RBI would have an enforcer role, ensuring the co-operative banks comply with regulatory requirements.

The bill aims to put co-op banks on par with the developments in the banking sector through “better management and proper regulation … with a view to ensure that the affairs of the co-operative banks are conducted in a manner that protects the interests of the depositors”.

It also promises to strengthen the co-operative banks by increasing professionalism, enabling access to capital, improving governance and ensuring sound banking through the Reserve Bank of India.

Related: Concern over India’s co-operative banks

The act will not apply to a primary agricultural credit society; or co-operative societies whose primary object and principal business is providing of long term finance for agricultural development.

RBI would have a mandate to examine all unsecured loans and advances granted co-operative banks and will be able to prohibit the co-operative bank from granting these if it finds that they have been against the interests of depositors. If deemed to be in the public’s interest or that of depositors, RBI can also direct that an additional audit of the co-operative bank accounts.

In November last RBI took control of Punjab and Maharashtra Co-operative Bank, one of the country’s largest co-op banks after concerns arose about the accuracy of its financial statements.

Related: Reserve Bank of India gives approval for conversion of co-operative bank

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