Calls for more control over the functioning of co-operative banks had increased after the central bank was forced to place sanctions on Punjab and Maharashtra Cooperative Bank and cap withdrawal due to irregularities in lending.
The Lok Sabha on Wednesday approved a bill to amend the Banking Regulation Act to bring co-operative lenders under the supervision of the central bank.
The Banking Regulation (Amendment) Bill, 2020 has been introduced to save depositors' money, Finance Minister Nirmala Sitharaman told lawmakers in the lower house of the parliament.
Societies which function as banks should come under the same rules as commercial banks and be subjected to better governance and regulation by the Reserve Bank of India, she added.
Calls for more control over the functioning of co-operative banks had increased after the central bank was forced to place sanctions on Punjab and Maharashtra Cooperative Bank and cap withdrawal due to irregularities in lending.
In September last year, the RBI had superseded the board of PMC Bank and appointed an administrator citing major financial irregularities, failure of internal control and systems, and incorrect reporting of its exposures.
The bill was passed after a reply by Finance Minister Nirmala Sitharaman. It will replace an ordinance brought by the government in June this year.
"This amendment is not for the central government to take over cooperative banks or to control cooperative banks. And it is not the first time that regulation for extending some powers to RBI is happening. Since 1965, cooperative banks are already being regulated by RBI," she said.
Sitharaman said that there was a need for an ordinance as there was uncertainty over the next session of parliament due to COVID-19 and the protection of depositors was of critical importance.
"We certainly want to support the cooperative movement...Several eminent committees have said there is a need to regulate them.
In the last two decades, 430 cooperatives banks have been delicensed and they have gone into liquidation. But not a single commercial bank whose depositors are protected by banking laws to the full extent of Banking Regulation Act has gone into liquidation," she said.
"I acknowledge the important contribution of cooperative banks. It is necessary in the interest of depositors and also the banks themselves that we need some banking laws also for cooperative banking activity. We are doing nothing in other works of cooperative societies," she added.
The minister said that the financial data shows that there is an increase in the gross NPA ratio of the urban cooperative banks from seven percent in 2018-19 to 10 percent.
(With ANI inputs)
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