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Saturday, July 11, 2020

Govt brings co-op banks under RBI supervision for better regulation

Currently, these banks come under dual regulation of the RBI and the Registrar of Co-operative Societies, resulting in regulatory and supervisory lapses at many of these banks.

By: ENS Economic Bureau | New Delhi | Published: June 25, 2020 1:55:08 am
cabinet meeting, cabinet meeting today, cooperative banks, rbi, space entrepreneurship, prakash javadekar, narendra modi, indian express news The decision comes in the backdrop of the RBI imposing restrictions on deposit withdrawal at the Punjab and Maharashtra Cooperative Banks and many other cooperative banks failing in recent period. (File Photo)

In order to protect depositors’ interests, the government approved plans to bring all urban and multi-state cooperative banks under the direct supervision of the Reserve Bank of India (RBI), empowering the central bank to regulate these on the lines of commercial banks. The Union Cabinet Wednesday approved promulgation of an Ordinance to this effect.

“In our country there are 1482 urban cooperatives banks and 58 multi-State cooperative banks, They have been brought under RBI supervision process, which is applicable to scheduled banks. Depositors will get more security because of today’s decision,” Information and Broadcasting Minister Prakash Javadekar said while briefing media about the Cabinet decisions.

These banks have a depositor base of 8.6 crore, who have saved a huge amount of Rs 4.84 lakh crore with these banks, and this decision will provide safety on their deposits he said. The decision comes in the backdrop of the RBI imposing restrictions on deposit withdrawal at the Punjab and Maharashtra Cooperative Banks and many other cooperative banks failing in recent period.

Unlike in the case of commercial banks, the RBI till now has no powers to draw up an enforceable scheme of reconstruction of a co-operative bank. The Cabinet had in February approved amendment to Banking Regulation Act to strengthen cooperative banks and avoid PMC Bank like crisis after an announcement was made in the Budget 2020-21 to this effect.

Explained

RBI gets more powers

Currently, urban and multi-state cooperative banks are regulated by RBI and Registrar of Cooperative Societies, with the central bank not having powers that it has for commercial banks. Direct RBI supervision and regulation will provide comfort to depositors.

Currently, these banks come under dual regulation of the RBI and the Registrar of Co-operative Societies, resulting in regulatory and supervisory lapses at many of these banks.

In another decision, the Cabinet approved a scheme to provide 2 per cent interest subvention to Shishu category of borrowers under the Pradhan Mantri MUDRA Yojana (PMMY), on loans outstanding as on March 31, 2020. Under Shishu category, lenders provide collateral-free loans of up to Rs 50,000. The interest subvention will be for a period of 12 months to eligible borrowers

About 9.37 crore loan accounts under the Shishu category with a total loan amount of Rs 1.62 lakh crore were outstanding as on March 31, as per government data.

The interest relief will be provided only to those Shishu loan accounts which are not NPA (non performing assets). The scheme, estimated to cost government Rs 1,542 crore, will be implemented through the Small Industries Development Bank of India.

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