The Banking Regulation (Amendment) Act, 2020

The Banking Regulation (Amendment) Act, 2020 received Presidential assent on 29th September, 2020. It amends the Banking Regulation Act, 1949. The act replaces the Banking Regulation (Amendment) Ordinance, 2020 promulgated on June 26, 2020.

Key Features: It extends the applicability of the Banking Regulation Act over the Primary cooperative banks (other than a Primary Agriculture Cooperative Society), Central co-operative bank, state co-operative banks.

• It allows RBI to initiate a scheme for reconstruction or amalgamation of banks without imposing a moratorium.
• A co-operative bank may issue equity, preference, or special shares. It may also issue unsecured debentures or bonds or similar securities with maturity of ten or more years to such persons.
• Board of Directors of a cooperative bank must have at least 51% of members with special knowledge or experience in areas such as accountancy, banking, economics or law. RBI may direct a bank to reconstitute its Board if it does not conform to the requirements. If the bank does not comply, RBI may remove individual directors and appoint suitable persons.
• RBI may exempt a cooperative bank or a class of cooperative banks from certain provisions of the Act through notification. These provisions relate to restrictions of certain types of employment, qualifications of the Board of Directors and, appointment of a chairman.
• The Act states that RBI may supersede the Board of Directors of a multi-state co-operative bank for up to five years where it is in the public interest for RBI to supersede the Board, and to protect depositors.

Implications: As the conditions of cooperative banks and commercial banks have deteriorated due to NPAs winding up of banks, the government has taken the right steps to improve the condition. It will enable the RBI to ensure that co-operative banks function effectively as they are important for providing services to the last mile.