Banking Regulation Act, 1949 

#GS3 #Economy #Banking  


The Lok Sabha has passed an amendment to the Banking Regulation Act, 1949. 

  • The government had to go for an ordinance because the financial health of many of the cooperative societies, which are also performing as banks, “was becoming very delicate”. 
  • The financial state of affairs of 277 urban cooperative banks is weak and they are reporting loss. 105 cooperative banks are unable to meet the minimum regulatory capital requirement. 47 banks have net worth is negative. 328 urban cooperative banks have more than 15 per cent gross NPA ratio. 
  • The stress in cooperative banks increased due to pandemic and gross ratios of urban cooperative banks increased from 7.7 per cent in March 2019 to over 10 per cent in March 2020. 


About the changes  

  • It 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. 
  • Few more amendments have been proposed under Section 45 of the Act that will help the central bank to develop a scheme to ensure the interest of the public, banking system, account holders in the bank and banking company’s proper management, without disrupting any banking functionalities. However, the changes will not affect the existing powers of the state registrars of co-operative societies under state laws. 
  • Besides, amendments in Sections 3 and 56 extend the provisions applicable to scheduled commercial banks to cooperative banks and brings them within the central bank’s regulation. 
  • The amendments do not apply to Primary Agricultural Credit Societies (PACS) 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”. 
  • The amendments do not affect existing powers of the State Registrars of Co-operative Societies under state co-operative laws. 
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