The Ordinance seeks to protect the interests of depositors and strengthen cooperative banks by improving governance and oversight.

The much-awaited Ordinance to bring all cooperative banks under the supervisory net of the Reserve Bank of India (RBI) was promulgated on Friday.

The new Ordinance--The Banking Regulation (Amendment) Ordinance 2020-- has now empowered the RBI to supersede the Board of 'Cooperative Banks' for up to five years and not just the Boards of 'Multi-State Cooperative Banks' as proposed in the amendment Bill that was introduced in Parliament in March this year.

The interesting part is that the Ordinance specifies that this change will come into effect only from a date to be notified by the Central Government.

The ordinance specifies that in case of a cooperative bank registered with the Registrar of Cooperative Societies of a state, the RBI will supersede the Board of Directors after consultation with the concerned state government, and within such period as specified by it.

The Ordinance seeks to protect the interests of depositors and strengthen cooperative banks by improving governance and oversight by extending powers already available with RBI in respect of other banks to cooperative 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 cooperative laws.

Not applicable for PACS

The amendments do not apply to Primary Agricultural Credit Societies (PACS) or co-operative societies whose primary object and principal business is long-term finance for agricultural development, and which do not use the word “bank” or “banker” or “banking” and do not act as drawees of cheques, an official release said.

The Ordinance also amends Section 45 of the Banking Regulation Act, to enable the 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, to avoid disruption of the financial system, the release added.

The ordinance also allows a cooperative bank to issue equity shares, preference shares, or special shares on face value or at a premium to its members or to any other person residing within its area of operation.

Also, cooperative banks can issue unsecured debentures or bonds or similar securities with maturity of ten or more years to such persons. Such issuance will be subject to the prior approval of the Reserve Bank of India (RBI).

Published on June 27, 2020

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