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Banking regulation Bill: Revival of banks without a moratorium on deposit withdrawals

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The government had issued an ordinance in June for this purpose, which, of course, included the change. Once cleared, the new bill will replace the ordinance.

Finance Minister Nirmala Sitharaman on Monday introduced a bill that seeks to allow the Reserve Bank of India (RBI) to make a scheme to restructure a stressed bank without imposing a moratorium on deposit withdrawals. Banking Regulation (Amendment) The law also aims to bring urban and multi-state cooperative banks under RBI regulation and make it easier for them to access capital. The idea is to protect the interests of depositors and better examine the issues of these cooperating banks after the crisis of the Punjab Maharashtra Cooperative Bank (PMC).

The Minister also introduced the Regulation of Factor Regulation (Amendment), 2020. The draft law aims to provide relief to cash-strapped MSMEs whose payments against supplies have been blocked for more than 90 days, allowing all financial companies non-banks to participate in the trade receivables discount system, rather than restricting it to only select shadow lenders.

Sitharaman introduced the Draft New Banking Regulation (Amendment) after withdrawing a previous one that did not contain the provision to allow the central bank to draw up a restructuring or merger scheme for all banks even without issuing a moratorium order, in order to avoid disruption. financial systems.

The government had issued an ordinance in June for this purpose, which, of course, included the change. Once cleared, the new bill will replace the ordinance.

Sitharaman mentioned the case of PMC Bank where depositors could not withdraw their money beyond a limit per month, as the central bank had to impose a moratorium in September 2019 due to a troubled asset crisis there.

However, the proposed amendments are not applicable to major agricultural credit companies, land mortgage cooperating banks and any entity that did not use the terms bank, banker or banker in their own name or in connection with their business.

The bill enables cooperative banks to raise money through public issuance and private placement of equity or preference shares and unsecured debts, subject to central bank approval. Prior to the Ordinance, cooperative banks’ access to capital was limited.

There are 1,540 banks of urban cooperatives and multi-state cooperatives in the country with 8.60 crore depositors, which have total savings close to Rs 5 crore.

The ordinance will increase the power of central banks to regulate these units. However, administrative matters in these cooperatives will continue to be handled by the Secretary of the Cooperative. Also, the changes do not affect the existing powers of state registrars of cooperative societies under state law. The supplement also does not apply to major farm credit companies or cooperatives whose main business is long-term financing for agricultural development.

PMC Bank was found to have lent over Rs 6,700-crore to a single HDIL real estate company through alleged fraudulent means and also hid the stress from the RBI by creating separate account books. The crisis hit millions of its depositors, mostly small ones.

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