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Banking Regulation Bill

Banking Regulation Bill


The Banking Regulation (Amendment) Bill was presented in Lok Sabha on 14th September 2020 and passed on 16th September 2020. This bill amends the Banking Regulation Act, 1949, that manages the working of the banks along with providing details regarding the regulation, management, and operation of the banks. The Bill amends to state that the Act will be impertinent to

  1. Primary agricultural societies
  2. Co-operative societies that work for agricultural development

These societies are neither allowed to use the terms like ‘bank’ or ‘banker’ nor act as an organization that clears cheques etc.

With regards to secure proper management, RBI gains the power of coming up with an outline for the amalgamation of the bank after the bank is placed under moratorium. Under the moratorium, banks neither face any legal action for up to half a year not can discharge liabilities. Along with this, the Bill also grants cooperative banks to emanate preference, equity, special status, and unprotected debentures with a maturity of ten years. Such issuance will undergo prior approval by RBI. While the bill specifically says that demand payment will not be entertained by cooperative banks, the latter cannot withdraw its share capital except as itemized by RBI.

The Bill does not allow cooperative banks to employ an insolvent person, convicted of a crime involving moral turpitude, as a Chairman. The RBI holds the authority of removing the said individual and appointing whoever they deem fit for the post provided that the bank does not do so. In addition to this, the Board of directors is supposed to be consisting of 51% of members with knowledge or experience in areas such as banking, economics, and law. RBI holds the authority to order the bank to reform the Board, provided that they fail to conform to the requirements. In failing of compiling RBI guidelines, the RBI takes the initiative in its own hands.

RBI has also been provided with the power to discharge a class of cooperative banks or a cooperative bank from certain provisions, revolving around employment, qualification for Board of Directors, and appointment of Chairman, of the Act through notifications.

While RBI is authorized to take the place of the Board of Directors of a multistate cooperative bank for up to five years, the conditions have to include the public interest of RBI and the protection of depositors. The Bill eliminates the restriction on a cooperative bank from making advances on its shares, restricting unsecured loans to directors where chairmen or directors are an interested party. The Act mentions circumstances when unsecured loans may be accorded and further states how such loads must be reported to the RBI.

It is contemplated that due to the amendments in the Banking Regulation Act, 1949, political involvement or intrusion in the designation of officers of cooperative banks of the country will be decreased thus changing their working methodology. This will increase the confidence of the general public in the banking system of India.



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By Amaal Sheikh, B.A L.L.B, Hamdard Institute of Legal Studies and Research (HILSR), Jamia Hamdard University, New Delhi

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Written by Hardik Tokas

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