Thursday 22 October 2020

LS passes Banking Regulation Bill to address disruptions in financial system

- Posted on 17 September 2020

NEW DELHI, SEP 17 : The Lok Sabha has passed a Bill to address the potential disruptions in the financial system and to ensure that cooperative banks are conducted in a manner that protects the interests of the depositors by increasing professionalism, enabling access to capital, improving governance and ensuring sound banking through the Reserve Bank of India (RBI).

The Bill, passed on Wednesday, gives powers to the RBI to prepare a scheme for reconstruction or amalgamation of the banking company without the necessity of first making an order of moratorium.

The Banking Regulation (Amendment) Bill, 2020 which amends the Banking Regulation Act, 1949, does not apply to certain cooperative societies such as primary agricultural credit societies and cooperative land mortgage banks.

It also does not apply to the primary agricultural credit societies and cooperative societies whose principal business is long term financing for agricultural development.

Further, the Bill mentions that these societies must not use the words ‘bank’, ‘banker’ or ‘banking’ in their name or in connection with their business, or act as an entity that clears cheques.

In her concluding speech in favour of the Bill, which seeks to replace the Banking Regulation (Amendment) Ordinance, 2020, Finance Minister Nirmala Sitharaman said as the economic situation arising from the Covid-19 pandemic had increased the stress in both cooperative banks and banking companies, there was an immediate need for legislation in this regard.

She said the Banking Regulation (Amendment) Bill, 2020 was introduced in Lok Sabha on March 3 this year but it could not be passed.

As Parliament was not in session, she informed the lower House, the Banking Regulation (Amendment) Ordinance, 2020 was promulgated by the President Ram Nath Kovind on June 26 this year.

The Bill was moved in the House with amendments in its Section 3, Section 45 and Section 56.

Amendment in Section 3 provides that the Act shall not apply to a primary agricultural credit society or a cooperative society whose primary object and principal business is providing long term finance for agricultural development.

Amendment of Section 45 to address the potential disruptions in the financial system by providing for the RBI to prepare a scheme for the reconstruction or amalgamation of the banking company without the necessity of first making an order of moratorium.

The amendment in Section 56 provides that notwithstanding anything contained in any other law for the time being in force, the provisions of the Act shall apply to co-operative societies, subject to the modifications specified therein.

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