NEW DELHI: In a bid to protect the interest of depositors, the Lok Sabha on Wednesday passed an amendment to the Banking Regulation Act to bring cooperative banks under the supervision of the RBI.
The Banking Regulation (Amendment) Bill, 2020 replaces an ordinance that was promulgated on June 26.
The bill, which comes in the backdrop of the PMC Bank scam, seeks to strengthen cooperative banks by increasing their professionalism, enabling access to capital, improving governance and ensuring sound banking through the RBI.
Replying to the debate on the bill in the Lok Sabha, Finance Minister Nirmala Sitharaman said this legislation is for depositors' safety and not for undermining powers of the Registrar of Cooperative Societies.
Powers of the Registrar of Cooperative Societies have not been encroached upon but banking activity of cooperatives will be regulated by the Reserve Bank of India (RBI), she said.
"I want to make it very clear that this bill does not provide for regulation of cooperative banks by the central government. We are not doing anything new, we are working in the interest of depositors," she added.
The amendment is not for the central bank to take over control of cooperative banks, she said.
Clarifying on the need for the ordinance, the finance minister said, "Absolutely there was a need for it. One was not sure when will be the next session of Parliament because of COVID-19 pandemic, and in the meanwhile, the protection of depositors is of critical importance."
Moreover, there was rise in non-performing assets (NPAs) of the cooperative banks, Sitharaman said.
As per the annual financial data made available before June, there was an increase in gross NPA ratio of urban cooperative banks to 10 per cent in 2019-20 as against 7 per cent in 2018-19, she added.
The finance minister emphasised that the government has not forgotten the success of the cooperative movement, but added if cooperatives are providing banking services, then several committees have recommended that there is a need to regulate them.
"It's not as if we have forgotten the success of the cooperative movement. We are not undermining, but we must face the truth that in the last two decades, 430 cooperative banks have been delicensed and they have gone into liquidation," she said.
"In contrast, not a single commercial bank in the same period whose depositors are protected by the banking laws have gone into liquidation. So it should not be construed as we are stepping into the terrains of the states," she added.
Opposition parties had protested against the bill, saying it infringed upon the states' rights.
"We don't undermine anybody, but if depositors are suffering we have to stand with them. We are bringing this law to safeguard interest of depositors," Sitharaman added.
The proposed law seeks to enforce banking regulation guidelines of the RBI in cooperative banks, while administrative issues will still be guided by the Registrar of Cooperatives.
It is aimed at bringing cooperative banks on par with developments in the banking sector through better management and proper regulation which protects the interest of depositors.
The bill assumes significance in the wake of a scam in the Punjab and Maharashtra Cooperative (PMC) Bank affecting lakhs of customers who have been facing difficulty in withdrawing their money due to restrictions imposed by the RBI.
The PMC Bank was found to have given over Rs 6,700 crore loan to a single realty company HDIL through allegedly fraudulent means and also hid the exposure from the RBI by creating separate books of accounts.
There are about 1,540 cooperative banks with depositor base of 8.60 crore having total savings of around Rs 5 lakh crore.
The Congress and DMK on Wednesday opposed the Bill, stating that it infringes upon the rights of states.
Urging the government to withdraw the bill, Congress' Manish Tewari said resorting to the ordinance route to make laws "undermines the majesty of Parliament" and is an attack on the legislative institution.
At a point when the country's GDP growth rate has been in a freefall for seven quarters preceding the lockdown and when all economic activity during the lockdown had come to a complete standstill, there was absolutely no rationale for promulgating the ordinance, especially when the bill was under consideration in this House, he said.
"In a federal polity, this ordinance and the bill which seeks to replace (it), is a frontal assault on the federal structure of the Constitution and this will have long-term implications on the democratic polity of India," Tewari said.
He also said the "hair-splitting" which Finance Minister Nirmala Sitharaman has attempted by segregating primary agricultural credit society, long term credit society and district cooperative banks is going to create "utter mayhem" in the agricultural economy, if not anarchy, because of the symbiotic linkages between these bodies.
The amendments proposed in the bill do not apply to primary agricultural credit societies or co-operative societies whose primary object and principal business is long-term finance for agricultural development, and which do not use the words 'bank', 'banker' or 'banking'.
Sitharaman, while moving the bill in the Lok Sabha, said, "We are not doing anything to touch state cooperatives, we are not doing anything to primary agricultural credit societies, we are not doing anything to touch cooperative societies whose primary object and business is providing long-term finance for agricultural development."
The amendments would be applicable only on those cooperative societies which are engaged in banking, she added.
Tewari further said if there have been instances of malfeasance in district cooperative central banks and urban local cooperative banks, there are also as many success stories.
"State governments are more than competent to discharge their functions," he added.
Strongly opposing the bill, DMK MP Senthil Kumar said this will be seen as infringement of the states' rights.
Kumar said he differed on the argument of the finance minister that many cooperative banks in the country are incurring losses.
Citing the example of Tamil Nadu, he said 128 cooperative banks are running successfully in the state .
"(The bill) will be seen as infringement of the states' rights and infringement of states' rights have constantly been seen by this government. This government is undermining the process of democracy for a very, very long time," he added.
Kumar also said the RBI is already overloaded with many other responsibilities and regulating cooperative banks will further increase its load.
"The incompetence of this government was seen in the lack of interest in recovering the bad loans from the likes of Mallyas and Modis, but to go after the agriculturist," he alleged.
He also said the country is undergoing a serious health and economic crisis "created by the government" and it is blaming its shortcomings on the COVID-19 pandemic and saying it is 'an act of God'.
Trinamool Congress member Saugata Roy said he supports the contention of the DMK MP regarding the success of south Indian cooperative banks and "where he said this bill is in infringement of the states' rights."
Roy further said the RBI has not been a successful regulator and it failed to take preemptive steps in the case of Yes Bank.
"Actually this government is hampering the cooperative movement. I do not think that such a bill was necessary. I do not think that RBI has proved to be the best regulator in the country, I do not think that the power of the states' cooperatives should be taken away," Roy said.
Trinamool Congress MP Nusrat Jahan Ruhi also opposed the bill, while TDP's Jaydev Galla welcomed the legislation.
Supporting the legislation, BJP's Shivkumar Udasi said passing the bill will boost depositors' confidence and also prevent further scams.
YSRCP MP Lavu Sri Krishna Devarayalu too supported the bill but added that "let us not make the RBI as one stop solution for every problem".
G Kirtikar of the Shiv Sena also spoke in favour of the bill.
BJP's Tejasvi Surya said from the perspective of a depositor, a bank is a repository of trust.
The moment a financial institution uses the word 'bank', the depositors presume that it is supervised and guided by RBI therefore his deposits are safe.
The depositor does not understand nor does he know that multiple legislations cover the field of banking and cooperative banks.
"This dual control regime therefore. Creates a peculiar practical as well as a constitutional problem," he said.
Nothing highlights this anomaly better than the recent redressal of Yes Bank, while depositors of Punjab & Maharashtra Co-operative (PMC) Bank as well as Sri Guru Raghavendra Sahakara Bank continue to be in distress, he added.
A M Arif (CPI-M), Saptagiri Sankar Ulaka (Congress) and Sunil Dattatray Tatkare (NCP) also participated in the discussion.