'Changes in banking regulation law aimed at improving governance in cooperative banks': FM

Finance Minister Nirmala Sitharaman on Wednesday said amendments to banking regulation law seeking to extend supervision of RBI to cooperative banks are aimed at improving ir governance and protecting depositors'' money. Moving Banking Regulation (Amendment) Bill, 2020 in Lok Sabha, Sitharaman said government was compelled to come out with an ordinance during lockdown period as condition of cooperative banks was "grave".

Gross n-performing assets (NPAs) of cooperative banks increased from 7.27 percent in March 2019, to over 10 percent by March 2020, she said, adding as many as 277 urban cooperative banks have reported losses in 2018-19 fiscal. She furr said that over 100 urban cooperative banks were unable to meet minimum regulatory capital requirement and 47 had negative net worth at end of March 2019.

In June, Union Cabinet had approved an ordinance to bring cooperative banks under supervision of Reserve Bank of India (RBI). It also extended provisions applicable to commercial banks to cooperative banks. Responding to Congress'' opposition to ordinance route taken by Centre to amend banking regulation law, Sitharaman said ordinance was brought in only because of financial health of many cooperative societies which were also performing role of banks was becoming "very delicate".

"Due to pandemic, stress in cooperative banks increased and gross NPA ratio increased from 7.27 per cent in March 2019 to over 10 per cent in March 2020. refore it was felt that to protect depositors'' interest we should have ordinance brought in," she said.

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Section 45 of Banking Regulation Act is being amended to enable making of a scheme of reconstruction or amalgamation of a banking company for protecting interest of public, depositors, and banking system and for securing its proper manment, even without making an order of moratorium, so as to avoid disruption of financial system. Besides, amendments in sections 3 and 56 extend provisions applicable to scheduled commercial banks to cooperative banks and bring m within RBI regulation.

amendments do t apply to Primary Agricultural Credit Societies (PACS) or co-operative societies whose primary object and principal business is long-term finance for agricultural development, and which do t use words "bank", "banker" or "banking".

"We are t doing anything to touch state cooperatives, we are t doing anything to primary agricultural credit societies, we are t doing anything to touch cooperative societies whose primary object and business is providing long-term finance for agricultural development," Sitharaman said.

amendments would be applicable only for those cooperative societies which are engd in banking, she added.

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