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Cooperative Banks - In the light of The Banking Regulation (Amendment) Act, 2020

CA Manish Mehra 
on 31 October 2020

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  • From ancient times to this modern era Agriculture has paved a major contribution to building our nation. The lead role in the journey is played by our beloved farmers. This section of our population got its interaction with the banking system through cooperative banks only. Cooperative banks are an ocean of expectation for a major part of our country.
  • When you approach any village, district or tehsil in India you would admire the presence of cooperative banks there. At every 15-30 km, we can see a branch of a cooperative bank in the service of the people of democratic India. From the distribution of subsidiaries, grants, keeping money safe, granting a loan to securing deposits all such activities have been performed by cooperative banks in rural India.
  • Cooperative banks have a web of networks in India. If this network would be utilized at full then it could provide greater financial benefit to the economy and looking to the amendment in Banking Regulation Act even off late but the government has taken a step further in such direction.
Cooperative Banks - In the light of The Banking Regulation (Amendment) Act, 2020

There are 1577 cooperative banks in India as 33 State cooperative banks, 1482 Urban cooperative banks, 62 multi state cooperative banks.

Image 1

Solely State cooperative bank has a network which could be understood as like:-

  • The MP Rajya Sahakari Bank Maryadit (Apex Bank)
  • 38 District central cooperative banks (DCCB)
  • Each DCCB has further 20-25 branches.

Image 2

Then the question would arise that if such all structure was there then why the amendment is brought in Banking regulation act in the citation of cooperative banks. The reform is backed by the following:-

  • A huge number of deposits are at stake in cooperative banks.
  • Mounting NPA in cooperative banks is an alarming signal for the Indian Economy.
  • Greater political influence by politicians as DCCB's are chaired by local politicians due to which banking decisions get interrupted.
  • Cooperative banks had for a long been a weak link in the financial system because of a lack of adequate oversight. While RBI has been regulating and supervising banking functions, primary oversight has been with the registrar of societies.
  • Finance minister Nirmala Sitharaman said in the Lok Sabha "For the last two years, depositors of cooperative banks and small banks are facing problems. We are trying to bring this amendment in order to protect the depositors"
 

Amendment made in Banking regulation act which has got the assent of The President of India on 29.09.2020

  • Provisions applicable to banking companies will also applicable to cooperative banks. This ensures that cooperative banks are equally subject to better governance and sound banking regulations through the Central bank (RBI).
  • The act allows the central bank to initiate a scheme for reconstruction or amalgamation of a bank without placing it under moratorium.
  • If the central bank imposes a moratorium on a bank, the lender can not grant any loans or make investments in any credit instruments during the moratorium tenure, according to the act.
  • The co-operative banks will be allowed with prior approval of RBI to issue equity, preference, or special shares on face value or at a premium to its members, or to any other person residing within their area of operations. The banks may also issue unsecured debentures or bonds or similar securities with maturity of ten or more years to such persons.
 

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