The Lok Sabha on Wednesday passed an amendment to the Banking Regulation Act, 1949, which will bring cooperative banks under the direct supervision of the RBI and bring them under some of the same governance norms as commercial banks.
It will also allow the RBI to amalgamate or reconstruct a stressed cooperative bank without first imposing a moratorium, thus protecting the interests of the depositors, said Finance Minister Nirmala Sitharaman, moving the Amendment Bill in the House.
The Bill replaces an ordinance to the same effect promulgated on June 26, and was passed by a voice vote.
Replying to the debate on the Bill, Ms. Sitharaman sought to refute accusations from Opposition MPs that the Central government was taking over control of the cooperative banks or that the proposed legislation would undermine federalism. She also dismissed concerns that the ordinance was promulgated in a hurry, noting that data showed a sharp increase in the non-performing assets of the banks between 2018-19 and 2019-20.
“We were concerned that the pandemic would further stress the financial health of more cooperatives, so we took steps to safeguard the interests of the depositors,” she said. Addressing concerns that the RBI has failed to curb crisis situations among commercial banks as well, the Finance Minister noted that 430 cooperative banks had been delicensed and liquidated over the last two decades, while not a single commercial bank has gone into liquidation under the oversight of the RBI.
Congress MP Manish Tewari said the RBI was a conflicted body as it carried out multiple roles and urged that banking reform begin with spinning off its other responsibilities as the Central government’s banker so that it can fulfil its primary role as a banking regulator.
He also argued that the amendment Bill would create “utter mayhem” in the farm economy because of the symbiotic relationship between the district and urban cooperative banks which are the target of the legislation and the primary agri credit societies which have been left out of its ambit. “Let’s leave the cooperative sector alone; if there has been malfeasance, there have also been many more success stories,” he said. “This is a frontal assault on States’ rights.”
A number of south Indian MPs — both who supported and opposed the Bill — remarked on the success of the cooperative system in the their States, with DNV. Senthilkumar S. of Tamil Nadu being the most vociferous proponent of the “Dravidian model”. Noting that the State has 128 successful cooperatives, with only nine running losses, he opposed the Bill. Representatives from the AIADMK, the TDP and the YSRCP also appreciated the cooperatives of the south but supported the Bill. The Shiv Sena, the JD(U), the BJD and the BSP also supported the Bill.
NCP’s Supriya Sule said it was unfortunate that the debate had devolved into a “defaming of cooperatives” and asked the FM what had been done to ensure that every depositor of the Punjab & Maharashtra Cooperative Bank recovered their losses from the scam that initially triggered this amendment, since the ordinance was passed three months ago.
