Govt is amending Banking Regulation Act to benefit depositors: FM

New Delhi: The government has brought amendments to the Banking Regulation Act, 1949 in order to protect the interests of the depositors, Union Finance Minister Nirmala Sitharaman said in Parliament on Wednesday.

The Finance Minister said the government is trying to bring amendments in order to protect the interest of depositors who in the last two years have been put to hardships.

The depositors in some unfortunate situations in the banks or cooperative societies, which are also operating as banks, are put to hardship, the Minister said while moving the Banking Regulation (Amendment) Bill, 2020 to amend the Banking Regulation Act, 1949 in the Lok Sabha.

She said the government had introduced the Bill so that the depositors interests will be taken care of. But, the Minister said, unfortunately, during the Budget session the government could not have this Bill passed and had to bring in an ordinance. Sitharaman said the ordinance was brought in only because the financial health of many of these cooperatives, which were also performing as banks, was becoming very bad.

She informed the Lower House that the financial condition of 277 urban cooperative banks was very delicate and they were reporting losses, while 105 such banks were unable to fulfil their minimum regulatory capital requirement.

She said a total of 47 urban cooperative societies had a negative net worth and 328 urban cooperative banks were having more than 15 per cent gross NPA (Non Performing Assets).

Despite the Covid-19 pandemic, Sitharaman said the gross NPA ratio of urban cooperative banks increased from 7.27 in March 2019 to over 10 per cent in March 2020. Therefore, the Minister said, the government had to bring an ordinance in the interest of the depositors and now that ordinance has to be replaced.

She said her Ministry has brought in amendments in Section 3, Section 45 and Section 56. By amending Section 3 and 56, the government is making provisions applicable to banking companies applicable to cooperative banks also so that cooperative banks are equally subject to better governance and sound banking regulations through the Reserve Bank of India (RBI). Section 45 is being amended because it will enable the RBI to make a theme of reconstruction and amalgamation, she said.

Giving the example of the recent Yes Bank reconstitution scheme, she said it is to protect the interest of the public depositors without making the bank undergo a moratorium period. She also gave an example of BMC bank in which the depositors could not get a resolution till now.

The minister clarified that the Bill will not be applicable to the Primary Agricultural Credit Society and will also not be applicable to the cooperative society whose primary business is providing long term finance for agricultural development. "This will be applicable only on those who bank, banker and banking business in cooperative society."

Mentioning that her government is not doing anything new, the Minister said Section 3 and 56 have also been amended earlier in 1965, 1984, 1987, 1989 and 2012.

On the first day of the session, Sitharaman had withdrawn the Bill saying "it is being withdrawn to add a few new things giving the Reserve Bank of India a chance to be able to restructure distressed cooperative banks, which are in serious need". The Bill was not passed by Parliament during the Budget Session and subsequently an ordinance was issued.