The Union Cabinet on Wednesday approved an amendment to the Banking Regulation Act to bring multi-state cooperative banks under the watch of the central bank and prevent a repeat of Punjab and Maharashtra Cooperative Bank-like crisis, reports The Economic Times.
“There are 1,540 cooperative banks with a depositor base of 8.60 crore having total savings of about Rs.5 lakh crore. The proposed law seeks to enforce banking regulation guidelines of the RBI in cooperative banks, while administrative issues will still be guided by Registrar of Cooperatives,” information and broadcasting minister Prakash Javadekar said, briefing the media about cabinet decisions.
Finance minister Nirmala Sitharaman announced in the budget that oversight of cooperative banks would be brought under the Reserve Bank of India through an amendment to the Banking Regulation Act, in order to increase professionalism and improve corporate governance.
Javadekar said that cooperative banks would be audited according to RBI rules and appointment of CEOs would require prior approval from the central bank. The RBI will also have the right to supersede the management of a cooperative bank in case of governance failure, Javadekar added.
The finance minister had in her budget speech announced an increase in the insurance cover for depositors to Rs.5 lakh from Rs.1 lakh.
Finance secretary Rajiv Kumar said after the budget that since co-operative banks take deposits from the public, they need to be responsible to them. “They (cooperative banks) actually play a very important role in the rural areas. But, at the same time, if you are taking deposits, you need to be responsible to the customer also. So, those norms will change through the Banking Regulation Act to make it far more robust in terms of regulation,” Kumar had said.
Under the new norms, cooperative banks would be required to more strictly meet capital norms, he had said.