Introduction

In the wake of Covid-19, the Government of India passed a new bill named the Banking Regulation
Amendment Bill, 2020, in the recent monsoon session of the Parliament. The Bill was widely accepted by
many, but as the regular custom, the opposition parties widely criticized the Bill.

Background of the Amendment Bill

In India, the sole legislation which governs the entire banking system India is the Banking Regulation Act,
1949. From time to time, with the changes and developments in the arena of the banking sector, the law
has been amended. However, when the Act was enacted, Act did not extend to co-operative banks. But
the need for the inclusion of co-operative banks under the purview of the Reserve Bank of India arose.
Keeping this in mind, some of the provisions of the Act were extended to the co-operative banks in the
year 1965.[1]This gave some regulatory powers to the RBI over the co-operative banks. Further, the
need to extend the regulatory power of RBI over the co-operative banks came into the picture, and the
result was the passing of the Banking Regulation Amendment Bill, 2020.

The Objective of the Bill

The main objective of the Bill is to amend certain provisions in the existing Banking Regulation Act, 1949,
so that the multi-state co-operative banks and urban co-operative banks can be brought under the
direct supervision and regulation of the RBI.[2]

An ordinance titled the Banking Regulation (Amendment) Ordinance was promulgated by the President
on June 2020 and the ordinance intended to amend some provisions of the Banking Regulation Act,
1949 thereby regulating the activities of the bank.[3]This bill replaced the ordinance.

Another main objective of the Bill is to, mainly, protect the interests of the depositors.[4]

Highlights of the Bill

The Amendment Bill mainly focused on amending provisions of the Banking Regulation Act, 1949. The
main highlights of the Bill are:

Certain provisions of the Act which were applicable to the commercial banks were extended to the co-
operative banks by the Amendment Bill.

RBI has been empowered to start a scheme for the purpose of reconstruction or amalgamation of a
stressed lender without imposing a moratorium.[5]

After getting prior approval from the RBI, the co-operative banks are empowered to issue equity,
preference, or special shares on face value or at a premium to its members or unsecured debentures or
bonds on their own and they are having complete power in this regard.[6]

Changes Brought by the Bill

In the year 2019, a co-operative bank named Punjab and Maharashtra Co-operative Bank was caught by
the RBI for the frauds caused in it by the lenders of the bank for years.[7] This issue has not been
resolved yet. Therefore due to the urgent need to resolve such issues and to prevent similar events in
the near future, an Amendment to the 1949 Act mandated. So, the main change brought by the Bill is
that the RBI has the authority to intervene in these matters and can resolve the same. By the direct
supervision of the RBI on co-operative banks will actually increase the transparency level about the co-
operative banks.

Effect on Banks by the Bill

The main impact on the banks would be that RBI will now be vested with the power to undertake a
scheme of merger of a bank that is distressed without putting the bank in the moratorium period.[8]A
strict effect on the bank is taking upon stringent action against the co-operative banks who fail to report
the scams that happened in such banks on time.

Exception Under the Bill

The Bill has no impact on the co-operative banks which are in existence and are registered under the co-
operative societies of the respective state laws.[9] In addition, the Bill also does not apply to:[10]

Primary agricultural credit societies; and

Co-operative societies whose principal business is long term financing for agricultural development.

Criticism Against the Bill

The Bill has been criticized mainly by the opposite part leaders. They state that the Bill seeks to encroach
on the rights conferred to the states on regulating the co-operative banks.[11]The Finance Minister
Nirmala Sitharaman said that the Bill has not been proposed to take the co-operative banks by the
Central Government.[12] But when the intervention of RBI has been imposed, it is implied that the co-
operative banks are brought under the centralized view, leaving behind no regulation by the State
Governments. In addition, only the existing co-operative banks who were already registered under their
State laws will be monitored by the State Governments. All the co-operative banks which are ought to
be set up in the future will be brought only under the supervision of RBI, but not under the State
Governments.

Conclusion

The Banking Regulation Amendment Bill, 2019 is a welcoming initiative taken by the Union Government
in the right direction. However, the Bill does have certain loopholes which if rectified would make the
Bill more effective. The centralization of power to the RBI would act as a check on the co-operative
banks. Despite this bill, the real task lies in the enforcement of the Bill, because it is often said that India
is a land of enormous legislations, but poor implementation of such legislation. This should not be in the
case of this Bill, as inadequate implementation of the Bill would affect the economy of the nation to a
greater extent. Therefore, the Bill should be taken on a serious note by all the authorities concerned.

[1] ‘The Banking Regulation (Amendment) Bill, 2020’<https://www.prsindia.org/billtrack/banking-

regulation-amendment-bill-2020-0> accessed 02 October 2020.
[2]‘Banking Regulation Amendment Bill, 2020’ <https://empowerias.com/blog/prelims-special-
facts/banking-regulation-(amendment)-bill,-2020> accessed 02 October 2020.

[3]‘The Banking Regulation (Amendment) Ordinance, 2020’

<https://www.prsindia.org/billtrack/banking-regulation-amendment-ordinance-2020> accessed 02
September 2020.

[4]‘Banking Regulation Amendment Bill, 2020’ <https://empowerias.com/blog/prelims-special-

facts/banking-regulation-(amendment)-bill,-2020> accessed 02 October 2020.

[5]‘Here’s all you need to know about the Banking Regulation Amendment Bill’
<https://www.moneycontrol.com/news/business/economy/heres-all-you-need-to-know-about-the-
banking-regulation-amendment-bill-5840241.html> accessed 02 October 2020.

[6]‘Banking Regulation Amendment Bill, 2020 passed. What it means for banks, customers’
<https://https://www.livemint.com/industry/banking/banking-regulation-amendment-bill-2020-passed-
what-it-means-for-banks-customers-11600337144895.html> accessed 02 October 2020.

[7]‘The Banking Regulation (Amendment) Bill 2020, Explained’ <https://transfin.in/the-banking-

regulation-amendment-bill-2020-explained> accessed 02 October 2020.

[8]‘All about New Banking Regulation (Amendment) Bill’ <https://bfsi.eletsonline.com/all-about-new-

banking-regulation-amendment-bill/> accessed 02 October 2020.

[9]‘All about New Banking Regulation (Amendment) Bill’ <https://bfsi.eletsonline.com/all-about-new-

banking-regulation-amendment-bill/> accessed 02 October 2020.
[10]‘Parliament clears The Banking Regulation (Amendment) Bill, 2020 gives powers to restructure Co-
operative Banks [Read Bill] <https://www.taxscan.in/parliamen-clears-the-banking-regulation-
amendment-bill-2020-gives-rbi-powers-to-restructure-co-operative-banks/75139/> accessed 02 October
2020.

[11]‘Here’s all you need to know about the Banking Regulation Amendment Bill’
<https://www.moneycontrol.com/news/business/economy/heres-all-you-need-to-know-about-the-
banking-regulation-amendment-bill-5840241.html> accessed 02 October 2020.

[12]‘Banking Regulation Amendment Bill, 2020 passed. What it means for banks, customers’
<https://https://www.livemint.com/industry/banking/banking-regulation-amendment-bill-2020-passed-
what-it-means-for-banks-customers-11600337144895.html> accessed 02 October 2020.