Finance Minister Nirmala Sitharaman on Monday introduced in the Lok Sabha a new Bill — The Banking Regulation (Amendment) Bill 2020 — to protect the depositors of Urban Cooperative Banks (UCBs) and Multi State Cooperative Banks (MSCBs).
This Bill, which replaces an ordinance issued in the last week of June, seeks to bring UCBs and MSCBs under RBI’s supervision process applicable to scheduled commercial banks.
Counters objections
Replying to objections raised to the introduction of this Bill, Sitharaman said that the Bill is primarily aimed at protecting depositors in cooperative banks and is focused only on those cooperatives that use the word ‘Bank’ and therefore receiving and dealing with deposits.
The Finance Minister also rejected the contention that the Lok Sabha has no legislative competence for this Bill as it related to a subject of cooperatives, which is in the States List of the Constitution.
“The legislative competence of this house is well established under Entry No 45 of the Union List. Regulation of Banking also comes under Entry no. 43 of Union List. Bill will only apply to those Cooperative societies which uses the word bank, banker or banking,” she said.
On the issue of Congress MP Shashi Tharoor’s point that there has been a legal challenge in court and therefore the Lok Sabha cannot go ahead with the introduction of the Bill, Sitharaman said there is no interlocutory relief that has been provided in the court and also there are no directions given by the court in the matter against the operation of this ordinance.
She highlighted that cooperative banks in the country have been regulated by the RBI since 1965 and this Bill only seeks to extend the applicability so that some of the banking regulation laws also apply to them.
‘State laws remain’
She asserted that State Cooperative laws are not being proposed to be amended. “State cooperative laws are not being touched in this proposed amendment,” she said.
This is being necessitated because cooperative banks are in a weak financial position and depositors are suffering.
As many as 277 urban cooperative banks are reporting losses; 105 UCBs are unable to meet minimum regulatory capital requirements; 47 have negative net worth and 328 UCB have more than 15 per cent Gross NPA ratio as of March 2019. “To protect depositors and in public interest, early legislation is required,” she said.
The Lok Sabha later allowed the introduction of this Bill through a voice vote.
Earlier, Sitharaman also withdrew the Banking Regulation (Amendment) Bill 2020 (Bill No 56 of 2020), which was introduced in March this year.
In a separate move, the Finance Minister also on Monday introduced in the lower house the Factoring Regulation ( Amendment) Bill 2020, which will pave the way for certain Non Banking Finance Companies to undertake factoring business.