The Banking Regulation (Amendment) Bill 2020 was introduced in the Lok Sabha on 3 March 2020. The Bill seeks to strengthen the provisions of the Banking Regulation Act, 1949 (the “Act”) as applicable to co-operative banks, specifically Section 56 (Part V) thereof, with a view to better management of such banks and protection of interests of their depositors. Significantly, the Bill permits co-operative banks to access capital through public issue or private placement under RBI’s regulatory oversight, amongst other consequent amendments.

The amended section 56 is a non-obstante provision such that the provisions of the Act shall apply to co-operative banks/ co-operative societies as they apply to banking companies subject to the specified modifications, notwithstanding anything contained in any other law for the time being in force.

Section 12 of the Act, pertaining to the regulation of paid-up capital, subscribed capital and authorised capital and voting rights of shareholders, which is presently omitted in respect of co-operative banks is proposed to apply with the following modifications:

• A co-operative bank may, with the prior approval of the RBI, issue, by way of public issue or private placement (i) equity, preference or special shares at face value or at premium; and (ii) unsecured debentures, bonds or other like securities with initial or original maturity of not less than ten years to any member of such co-operative bank or any other person residing within its area of operation, subject to such conditions, ceiling, limit or restriction on its issue or subscription or transfer as may be specified by the RBI.
• Save as provided under the Act, no person shall be entitled to demand payment towards surrender of shares issued to him by a co-operative bank
• A co-operative bank shall not withdraw or reduce its share capital, except to the extent and subject to conditions as may be specified by the RBI.
• In the case of a co-operative bank registered with the Registrar of Co-operative Societies of a State, the RBI shall consult the concerned State Government before issuing orders for supersession of its board of directors under section 36AAA of the Act;
• Certain other clauses of section 56 have been omitted or amended so as to apply or modify the provisions of the Act to co-operative banks.

Further, section 3 of the Act has been substituted to provide that “Notwithstanding anything contained in the National Bank for Agriculture and Rural Development Act, 1981, this Act shall not apply to (a) a primary agricultural credit society; or (b) a co-operative society whose primary object and principal business is providing of long term finance for agricultural development, if such society does not use as part of its name, or in connection with its business, the words “bank”, “banker” or “banking” and does not act as drawee of cheques.”

To refer to the Banking Regulation (Amendment) Bill 2020, as introduced in the Lok Sabha, click here.