In order to protect the interests of the depositors, the Union Cabinet has approved amendment to Banking Regulation Act to bring cooperative banks under the regulatory mechanism of Reserve Bank of India. The government has taken this move in the wake of the a scam in the Punjab and Maharashtra Cooperative (PMC) Bank affecting lakhs of customers who are facing difficulties in withdrawing their money due to restrictions imposed by the RBI. There are 1,540 cooperative banks with depositor base of 8.60 crore having total savings of about Rs 5 lakh crore.
Information and Broadcasting Minister Prakash Javadekar has said that the proposed law seeks to enforce banking regulation guidelines of the RBI in cooperative banks, while administrative issues will still be guided by Registrar of Cooperative. Observing that the changes will help strengthen financial stability, he said qualifications would be set for appointing CEO of cooperative banks and the RBI permission would be sought before appointment as followed in case of commercial banks. He also said audit would be as per the RBI guidelines and the central bank can also supersede the board if any cooperative bank is under stress. He added that Cooperative bank will be given time to comply with the RBI guidelines in phased manner.
The cabinet approval is in line with the Budget announcement made by Finance Minister Nirmala Sitharaman. She said to strengthen the cooperative banks, amendments to the Banking Regulation Act are proposed for increasing professionalism, enabling access to capital and improving governance and oversight for sound banking through the RBI. She also proposed in the Budget to hike the bank deposit insurance in scheduled commercial banks to Rs 5 lakh per depositor from the current Rs 1 lakh.
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