Banking Regulation (Amendment) Bill, 2020 – All To Know

The Banking Regulation (Amendment) Bill, 2020 was introduced in Lok Sabha on 14th September 2020. This bill is an amendment to the Banking Regulations Act 1949. Further, the Bill replaces the Banking Regulation (Amendment) Ordinance, 2020 which was promulgated on 26 June 2020.

What we will discuss

• What is Banking Regulation Act, 1949?
• Key Highlights of the Banking Regulation (Amendment) Bill, 2020
• Restrictions under the Bill

What is Banking Regulation Act, 1949?

• The Banking Regulation Act, 1949 is legislation in India that regulates all banking firms in India.
• Under this act, there are a total of 55 Sections.
• The Act was passed in 1949 and came into effect on 16th March 1949.
• The Act gives authority to the Reserve Bank of India (RBI) to excise control and regulate banks under supervision.
• The key objective of the Act is to ensure smooth banking through regulations including the opening of branches and liquid assets’ maintenance.
• The act sets the framework for the regulation and supervision of commercial banking in the country.
• This Act also supplements the Companies Act, 1956. It excludes Primary Agricultural Credit Society and cooperative land mortgage banks from its provisions.
• The Act also empowers the Reserve Bank of India to license banks, supervise the appointment of the management and boards, and regulate the operations.

Evolution of Banking System in India

Key Highlights of the Banking Regulation (Amendment) Bill, 2020

• The Bill will protect depositors’ interest by bringing co-operative banks under RBI’s regulatory framework.
• The Bill grants power to the Reserve Bank of India to initiate schemes for amalgamation or reconstruction without the imposition of any moratorium.
• With the amendment, co-operative banks of the country would be able to raise money through private placement and public issue, of preference shares or equity as well as unsecured debentures, with the nod of the central bank. The banks will not be entitled to reduce or withdrew its share capital with the permission of RBI.
• The Bill states that no person will hold the power to demand payment for surrendering shares issued by a co-operative bank to him.
• The Bill also states that cooperative banks cannot employe a person as the Chairman who is insolvent or has been convicted of a crime involving moral turpitude.
• The Bill also states that RBI has the power to exempt a co-operative bank or a class of cooperative banks from certain provisions of the Act through notification.

Restrictions under the Bill

Finance minister Nirmala Sitharaman introduced the Banking Regulation (Amendment) Bill, 2020 in the Lok Sabha on 14 September 2020. Let’s take a look at on what the Bill will not be applicable:

• The Bill has brought Cooperative banks under the dual control of RBI and cooperative societies. However, the Bill is not applicable to cooperative land mortgage banks, primary agricultural credit societies and any entities that did not use the terms ‘banking’, ‘bank’, or ‘banker’ in their name or relating to their business, as stated by Finance Minister.
• Under the bill, the Co-operative societies are not allowed to used words ‘banker’, ‘bank’, or ‘banking’ in their name.
• The amendments are not applicable to co-operative societies and Primary Agricultural Credit Societies (PACS) whose principal business is long-term finance for agricultural development.

Wrapping Up

To bring the co-operative banks under the RBI’s regulatory purview Finance Minister Nirmala Sitharaman introduced the Banking Regulation (Amendment) Bill, 2020 in the Lok Sabha. How do you think this Bill will help the Indian Economy? Tell us in the comments.