The Banking Regulation Amendment bill,2020, introduced by the Minister of Finance, Smt.Nirmala Sitaram, on September 14th ,2020,and passed on September 16,2020, was brought up to amend the Banking regulation Act,1949. The minister had said that the amendment was necessary considering the deteriorating condition of cooperative banks in the country. By amending the principle act, the cenral government aims to bring the cooperative banks under the supervision of the central bank. The minister also announced that the object of this amendment ia to protect the interests of the depositors as in some cases they are being put to hardships.

The amendment, which was brought up in the backdrop of the PMC Bank scam, seeks to strengthen co-operative banks by increasing professionalism, enabling access to capital, improving governance and ensuring sound banking through the Reserve Bank of India. The developments in the economy as a whole, and the banking sector, has paved its way to modify the parent act.

The Banking Regulation Amendment bill,2020, introduced by the Minister of Finance, Smt.Nirmala Sitaram,on march 3,2020 and passed on September 16,2020[1], was brought up to amend the Banking regulation Act,1949. This Act is a law that regulates banking firms in India. It was passed as the Banking Companies Act 1949. It came into force from 16 March 1949 and was changed to the Banking Regulation Act,1949 from 1 March 1966[2]. The parent act was enacted to consolidate and amend the law relating to banking.

The amendment was necessary, according to the minister, considering the deteriorating condition of cooperative banks in the country. It is claimed by the central government that, by amending the principle act, it aims to bring the cooperative banks under the supervision of the central bank[3]. The amendment does not apply to primary agricultural credit society and cooperative societies whose primary object is providing long term finance for agricultural developments. The minister had also made a statement that the object of this amendment is to protect the interests of the depositors as in some cases they are being put to hardships.

Limelight's on to the key takeaways of the bill...

Act not to apply to certain cooperative societies

As mentioned earlier the bill stands non applicable to the primary agricultural credit society and cooperative societies whose primary object is providing long term finance for agricultural developments.. these two societies must not use the term �bank�, �banker� or �banking� in their name or in connection with their business and they must not act as an entity that clears cheque.

Amendment of Section 45

The amendment of the section 45 has brought a change in the marginal heading of the section by substituting the word �reconstruction� for �reconstitution�. This empowers the reserve bank of India for suspension of the working of a banking company and to prepare a scheme of �reconstruction� or amalgamation without the necessity of first making an order of moratorium. If a moratorium is issued, then, the banking companies are to be suspended from making any payments to any depositors or discharge any liabilities or obligations to any other creditors or grant any loans or advances or make investments in any credit instruments[4].

Further amendments are made in section 45 of the Act to enable the Reserve Bank of India to make a scheme to protect the interests of the public, the banking system, depositors or to secure the banking company's proper management, without prior making an order of moratorium so as to avoid disruptions in the financial system. Another point to be noted is that the word banking institution in this section includes any banking company and State Bank of India or a corresponding new bank, the word subsidiary bank as been omitted by the bill[5].

Amendment of Section 56

Amendment of section 56 in the opening portion, for the words �The provisions of this Act, as in force for the time being,�, the words �Notwithstanding anything contained in any other law for the time being in force, the provisions of this Act� is substituted. The amendment further provides that the provisions of the Act shall apply to co-operative societies, for the time being in force, subject to the modifications specified therein[6].

Issuance Of Shares And Securities By Cooperative Banks

Further amendments have been made in the issuance of shares and securities by cooperative banks. The bill provides that a cooperative bank may issue equity, preference, or special shares on face value or at premium to its member or to any person residing within its area of operation. Further, it may issue unsecured debentures or bonds or similar securities with maturity of ten or more years to such persons. Such issuance will be subject to the prior approval of the RBI, and any other conditions as may be specified by RBI.

No person is allowed to demand payment towards surrender of shares issued to him by a cooperative bank and a cooperative bank also should not withdraw or reduce its share capital, except on the reserve bank�s specification.

Super session by RBI

The Amendment empowers the RBI to supersede the Board of Directors of a multi-state cooperative bank for up to five years under certain conditions. These conditions include cases where it is in the public interest for RBI to supersede the Board, and to protect depositors[7].

Exemption of cooperative banks

The amendment gives powers to the reserve bank to exempt the cooperative banks from certain provisions of the act. These provisions relate to the restrictions of certain types of employment, qualifications of the board of directors and appointment of chairman. The principal act gives power to the RBI to remove the employees whose remuneration, in the opinion of the RBI, is excessive, but the amendment exempts te cooperative banks from this provision also[8].

Repeals
The Banking Regulation (Amendment) Ordinance, 2020, promulgated on June 26,2020, stands repealed and has been replaced by the amendment bill[9].

Why was the amendment necessary?

The recent Punjab and Maharashtra cooperative (PMC) bank crisis is the torch that led the light to the bringing of the amendment. According to the media reports, the financial state of affairs of 277 urban cooperative banks is weak and they are reporting loss. 105 cooperative banks are unable to meet the minimum regulatory capital requirement. 47 banks have net worth is negative. 328 urban cooperative banks have more than 15 per cent gross NPA ratio[10].

The statement of objects and reasons of the bill mentions poor economic situation arising from the COVID-19 pandemic that had increased the stress in both cooperative banks and banking companies,and hence there was an immediate need for the legislation[11].

Conclusion
The bill empowers the Reserve Bank of India to deal with stressed assets in the banking sector. Primarily, the amendment bill allows RBI to initiate insolvency and bankruptcy against willful loan defaulters. The object of the amendment, i.e., to bring the cooperative societies under the umbrella of the central bank has been very well achieved since the RBI is empowered with more powers to reconstruct the weaker bank even without a prior order of moratorium from the central government.

The powers vested on the RBI are rationale as it is not merely a regulator, but also performs other functions like public debt management. The present bill would enable banks to start realizing the money, and assets to be utilized more efficiently. The companies will continue to function and the jobs in the company would also be saved.

End-Notes:

1. The banking regulation (amendment) bill,2020�,PRS LEGISLATIVE RESEARCH ,https://www.prsindia.org/billtrack/banking-regulation-amendment-bill-2020
2. What is the banking regulation (amendment) bill,2020?�,JAGRANJOSH.COM, https://www.jagranjosh.com/general-knowledge/banking-regulation-amendment-bill-2020-1594617537-1
3. Finance minister Nirmala Sitharaman moves bill to amend Banking Regulation Act�, HINDUSTANTIMES.COM, https://www.hindustantimes.com/business-news/finance-minister-nirmala-sitharaman-moves-bill-to-amend-banking-regulation-act/story-WzK4W6TTJ8YzGbZx9wXPXK.html
4. the banking regulation( amendment) bill,2020�, https://www.prsindia.org/sites/default/files/bill_files/The%20Banking%20Regulation%20%28Amendment%29%20Bill%2C%202020.pdf
5. ibid
6. ibid
7. The Banking Regulation (Amendment) Bill, 2020�, PRS LEGISLATIVE RESEARCH, https://www.prsindia.org/billtrack/banking-regulation-amendment-bill-2020
8. the banking regulation( amendment) bill,2020�, https://www.prsindia.org/sites/default/files/bill_files/The%20Banking%20Regulation%20%28Amendment%29%20Bill%2C%202020.pdf
9. ibid
10. Finance minister Nirmala Sitharaman moves bill to amend Banking Regulation Act�, HINDUSTANTIMES.COM, https://www.hindustantimes.com/business-news/finance-minister-nirmala-sitharaman-moves-bill-to-amend-banking-regulation-act/story-WzK4W6TTJ8YzGbZx9wXPXK.html
11. the banking regulation( amendment) bill,2020�, https://www.prsindia.org/sites/default/files/bill_files/The%20Banking%20Regulation%20%28Amendment%29%20Bill%2C%202020.pdf