Money & Banking

New code for co-ops to kick in from April

Shishir Sinha New Delhi | Updated on December 24, 2020

RBI will monitor issuance of shares and bonds by these banks, beside others   -  REUTERS

Regulations aim to protect depositors by strengthening RBI’s oversight

All Central co-operative banks and States co-operative banks will follow new set of regulations as prescribed under Banking Regulations Amendment Act with effect from April 1, 2021.

With this, the RBI will have more power to deal with State and Central co-operative banks. These regulations include issuance of shares and bonds, beside others.

The Finance Ministry has issued a notification stating that from April 1, the provisions of Section 4 of the said Act shall come into force for State co-operative banks and Central co-operative banks.

The new Act was assented on September 29, which replaced the ordinance promulgated on June 26. Section 4 is about amending Section 56 of original act of 1949, which deals with co-operative societies.

More power for RBI

The amendment provides that “notwithstanding anything contained in any other law for the time being in force, the provisions of the Act shall apply to co-operative societies, subject to the modifications specified therein.” Earlier, there was very limited application of the law.

There is another amendment which makes it clear that for public issue of private placement of shares, a co-operative bank will need prior approval of RBI. This will also be needed for issuance of unsecured debentures or bonds or other like securities with initial or original maturity of not less than ten years, to any member of such co-operative bank or any other person residing within its area of operation.

The amendment seeks to protect the interests of depositors and strengthen cooperative banks by improving governance and oversight by extending powers already available with the RBI in respect of other banks to Co-operative Banks as well for sound banking regulation, and by ensuring professionalism and enabling their access to capital. The amendments do not affect existing powers of the State Registrars of Co-operative Societies under state co-operative laws.

The amendments do not apply to Primary Agricultural Credit Societies (PACS) or co-operative societies.

The Act also amends Section 45 of the Banking Regulation Act, to enable making of a scheme of reconstruction or amalgamation of a banking company for protecting the interest of the public, depositors and the banking system and for securing its proper management, even without making an order of moratorium, so as to avoid disruption of the financial system.

Published on December 24, 2020

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