The Lok Sabha on Wednesday passed the Banking Regulation (amendment) Bill 2020 that seeks to protect the depositors of cooperative banks and empower the Reserve Bank of India (RBI) to regulate the banking activities of cooperative societies.

‘To regulate banking’

Replying to the over two-hour discussions on the Bill in the lower house, the Finance Minister Nirmala Sitharaman asserted that the Centre “cannot and does not want to undermine the cooperative movement” in the country, but would want the RBI to effectively regulate those Ccooperative societies if they are undertaking banking activities. “For better governance, we need to have banking regulations to apply on them”, she said.

Sitharaman highlighted that in the last two decades as many as 430 cooperative societies have been de-licensed and liquidated. However, not a single commercial bank under RBI supervision under the Banking Regulation Act had gone into liquidation in the last two decades, she added.

Sitharaman also made it clear that the Centre was not encroaching into the terrain of the States and was only using its powers under Items 43 and 45 in the Union List of the Constitution to enact this law.

“This Bill is in exercise of the powers vested under the Union List item and therefore consultation with States is not necessary. Consultation with States is required only on those in the concurrent list”, she added.

Sitharaman said that the Centre had to promulgate an ordinance in June as it was felt that the Covid-19 pandemic could make the already weak cooperative banks more “fragile” and this had to be avoided.

‘To protect depositors’

“While I acknowledge the importance of cooperative societies, it is in the interest of depositors that we are trying to empower RBI to regulate those undertaking banking activities. It is not suddenly that we have come up with something and we are stepping into the terrain of the States”, she said.

This Bill also empowers RBI to effectively handle mishaps in private banks without any loss of public confidence or disruption to the financial system.