Ordinance to let RBI revive banks without moratorium
The Banking Re- gulation (Amendment) Ordinance, promulgated by the President on Friday, empowers the Reserve Bank of India to undertake revival plans for banks without imposing a moratorium to avoid disruption of the financial system.
In case of Yes Bank, for instance, the government and the RBI first decided to put a moratorium which capped the amount of withdrawal by depositors. It was only after a few days that a new set of shareholders, led by SBI were put in the saddle. Over the years RBI has followed this practice.
The ordinance 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.
In pursuance of the commitment to ensure safety of depositors across banks, the President has promulgated the Banking Regulation (Amendment) Ordinance, 2020. The ordinance amends the Banking Regulation Act, 1949 as applicable to Cooperative Banks, a government statement said.
It said 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 cooperative societies under state cooperative laws. The amendments also do not apply to primary agricultural credit societies (PACS) or cooperative 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.
Earlier this week, the cabinet had approved the promulgation of an ordinance to bring all urban cooperative banks and multi-state cooperative banks under the supervision of the RBI to provide comfort to depositors and prevent incidents such as the one involving the Punjab and Maharashtra Cooperative Bank (PMC).
Last year, the RBI had imposed curbs on withdrawals, appointed an administrator and superseded the board of directors of the bank to restore confidence after major financial irregularities were unearthed and loans were given to a real estate company without following norms.