Banking Regulation (Amendment) Bill, 2020 passed by Parliament

Context: The Banking Regulation (Amendment) Bill, 2020 passed by Parliament proposes to expand RBI’s regulatory control over co-operative banks in terms of management, capital, audit and liquidation so as to provide for better management and proper regulation of co-operative banks


  • This will ensure that the affairs of the co-operative 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.
  • The Act does not apply to certain categories of co-operative societies/banks namely
  • (i) primary agricultural credit societies
  • (ii) co-operative societies whose principal business is long term financing for agricultural development.
  • In short only certain categories of Cooperative Banks have been brought under RBI supervision process, same as that applicable to scheduled commercial bank (SCBs).
  • Such a move to bring Urban Cooperative Banks (UCBs) under supervision of the RBI comes after several instances of fraud and serious financial irregularities (major scam at the Punjab and Maharashtra Co-operative (PMC) Bank last year)
  • The Bill states that RBI may exempt a cooperative bank or a class of cooperative banks from certain provisions of the Banking Regulation Act, 1949 through notification. 
  • These provisions relate to restrictions of certain types of employment, qualifications of the Board of Directors and, appointment of a chairman. 
  • The time period and conditions for the exemption will be specified by RBI.
  • Further, it prohibits the grant of unsecured loans or advances to its directors, and to private companies where the bank’s directors or chairman is an interested party.

Co-operative banks

  • These banks operate both in urban and non-urban centers.
  • While the co-operative banks in rural areas mainly finance agricultural based activities, along with some small scale industries and self-employment driven activities, the co-operative banks in urban areas mainly finance various categories of people for self-employment, industries, small scale units and home finance.
  • A Co-operative bank is a financial entity which belongs to its members, who are at the same time the owners and the customers of their bank.
  • Co-operative Banks in India are registered under the Co-operative Societies Act.
  • These banks provide most services such as savings and current accounts, safe deposit lockers, loan or mortgages to private and business customers.
  • The co-operative banking structure in India is divided into following main 5 categories:
  1. Primary Urban Co-op Banks
  2. Primary Agricultural Credit Societies
  3. District Central Co-op Banks
  4. State Co-operative Banks
  5. Land Development Banks
  • Cooperative banks are often created by people belonging to the same local or professional community who share a common interest.
  • Co-operative banks function on the basis of ‘no-profit no-loss. 
  • Co-operative Banks are also regulated by the RBI.
  • They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.
  • Reserve Bank of India (RBI) regulates and supervises the banking functions of State Cooperative Banks (StCBs)/District Central Cooperative Banks (DCCBs)/Urban Cooperative Banks (UCBs) under the various provisions of the Banking Regulation Act, 1949 (As applicable to Cooperative Societies) and the Reserve Bank of India Act, 1934.
  • However, the matters related to incorporation, registration, management, audit, liquidation, etc. in respect of these banks fall under the jurisdiction of the concerned Registrar of co-operative societies.
  • Under the Banking Regulation Act, 1949 (As applicable to Cooperative Societies), National Bank for Agriculture & Rural Development (NABARD) has concurrent powers to inspect StCBs and DCCBs.
  • RBI has prescribed uniform Know Your Customer (KYC) norms for all commercial and cooperative banks.

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