Banking Regulation Act Amended by RBI to regulate cooperative banks

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Seven-decade old Banking Regulation Act was amended by RBI to regulate cooperative banks. The law seeks to protect the interest of depositors and to strengthen cooperative banks by improving governance and default. The new amendment will now allow mergers and restructuring of banks in the public interest, without having any moratorium which not only limits withdrawals by depositors but also disturbs the banking lending operations. Apart from that cooperative banks will now be allowed to raise money through the public issue and private placement of equity, preference as well as debentures with the central bank’s permission. Now, access to capital for cooperative banks is restricted. The law seeks to protect the interest of the investors by expanding the powers already available with RBI regarding other banks to co-operative banks also for the sound banking regulation, said in the statement of RBI. Good regulation will also enhance their professionalism and access to the capital said in the statement.

However, the changes brought in to the banking sector do not affect the current powers of the state registrar’s cooperative societies under the laws. The new changes in the primary farm credit societies or cooperative societies are considered as the main business which results in long term investment for agricultural development. The previous week the union cabinet had approved an amendment to bring 1482 urban and 58 multi-state cooperatives under the supervision of RBI, a pass aimed at improving lenders’ default, increasing depositors’ confidence, and preventing frauds like Punjab and Maharashtra cooperative banks (PMC). Currently, cooperative banks are under the dual control of RBI as well as the Registrar of cooperative banks. Although the role of cooperative banks extended to incorporation, registration, management, audit, supervision of the board of directors, and liquidation.RBI has the primary responsibility for regulatory functions. The RBI has discovered fraud in PMC bank which had intentionally created fictitious accounts to hide over 4355 crore loan extended to the Housing Development and Infrastructure development (HDIL) which trapped millions of depositors. On March Finance minister declared amendments in the Banking Regulation Act 1949, to give central banks to have more control over the cooperative banks.

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