To protect the interest of depositors and avoid PMC Bank like crisis, the Union Cabinet Wednesday approved the amendment to Banking Regulation Act to strengthen cooperative banks. There are at least 1,540 cooperative banks with a depositor base of Rs 8.60 crore having total savings of about Rs 5 lakh crore.
The decision assumes significance in the wake of a scam in the Punjab and Maharashtra Cooperative (PMC) Bank affecting lakhs of customers who are facing difficulties in withdrawing their money due to restrictions imposed by the Reserve Bank of India.
While briefing media about the Cabinet decisions today, Information and Broadcasting Minister Prakash Javadekar said the proposed law will aim to enforce banking regulation guidelines of the Reserve Bank of India (RBI) in cooperative banks, while administrative issues will still be guided by Registrar of Cooperative.
Javadekar noted that these changes will surely help strengthen financial stability, adding that qualifications would be set for appointing CEO of cooperative banks and the RBI permission would be sought before appointment as followed in case of commercial banks.
Audit would be as per the RBI guidelines and the central bank can also supersede the board if any cooperative bank is under stress, he said. Cooperative bank will be given time to comply with the RBI guidelines in phased manner, he added.
Javadekar further said this is the second important measure taken by the government to protect the interest of depositors within a week.
The cabinet approval is in line with the Budget announcement made by Finance Minister Nirmala Sitharaman on Saturday. In her Budget 2020-21 speech, Sitharaman had said, “To strengthen the Cooperative Banks, amendments to the Banking Regulation Act are proposed for increasing professionalism, enabling access to capital and improving governance and oversight for sound banking through the RBI.”
Sitharaman proposed in the Budget to raise the insurance cover on saving deposits five times to Rs 5 lakh. “I wish to inform this august House that robust mechanism is in place to monitor the health of all Scheduled Commercial Banks and that depositors’ money is safe.
At present, bank depositors get an insurance cover of Rs 1 lakh on their amount by the Deposit Insurance and credit Guarantee Corporation if a bank fails. However, deposits maintained with different banks are not clubbed.
(With PTI inputs)
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