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Feb 16, 2020 | Blogs | Banking

Govt Planning To Empower RBI, Cooperative Banks Will Come Under Scrutiny

Govt Planning To Empower RBI Cooperative Banks Will Come Under Scrutiny

The Union Cabinet has approved the Amendment Bill that is planning to change the Banking Regulation Act. Under the Amendment Bill, the Reserve Bank of India (RBI) will get more powers to regulate and control cooperative banks. The bill was approved by the cabinet on Wednesday and is most likely to get presented in Lok Sabha in next parliament session. 

If the amendment bill is passed in the parliament, co-op banks such as Punjab and Maharashtra Co-operative Bank India Ltd or Mercantile Co-operative Bank can be inspected in accordance with the rules and regulations of Reserve Bank of India. 

After the loan frauds in cooperative banks came into light, changes in the current Banking Regulation Act were expected by the banking sector. While talking to the media, Information and Broadcasting Minister Prakash Javadekar said that the union cabinet has decided that if any co-op lender is found to be under stress, then the Central Bank of India will be in a position to supersede the bank's board after consulting the state government. 

Currently, all the cooperative banks in India are under the control of two bodies- the Registrar of Cooperative Societies and the Reserve Bank of India. The main function of the Registrar of Cooperative Societies is administrative roles like incorporation and management. While the second body, the RBI, does all the regulatory functions like balancing the cash reserve. The union minister said that the registrar will continue to perform its administrative roles even after the amendment. 

Reason Behind This Step

This step came from the government after the Punjab and Maharashtra Co-operative (PMC) bank scam. In September last year, several irregularities were found by the central bank in the daily procedures of the PMC bank. Several customers died in shock after the cash withdrawal from PMC bank was limited to a cap of thousand rupees per account for six months. 

In the press conference, Javdekar said, "To strengthen the Cooperative Banks, amendments to the Banking Regulation Act are proposed for increasing professionalism, enabling access to capital and improving governance and oversight for sound banking through the RBI."

The Union Minister claimed that this is the second step taken by the BJP govt within a single week that protects the common interest of depositors. The first step talked about by Javdekar is the announcement made by the finance minister Nirmala Sitharaman to raise the insurance cover on saving deposits Rs five lakh. Earlier, it was just Rs one lakh. 

The banking sector is witnessing a number of changes amidst the economic crisis. Several media outlets have reported that the central Govt is likely to notify the merger of 10 PSUs by the end of this week. The total number of PSUs will then be reduced to 12 from 27.

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