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Home News Reports Union government brings cooperative banks under RBI control through an ordinance

Union government brings cooperative banks under RBI control through an ordinance

So far, the urban and multi-state cooperative banks are registered and governed by the state governments under the respective Co-operative Societies Act of the concerned states

The Union Minister of Information and Broadcasting, Prakash Javadekar on Wednesday said that the government banks, 1,482 urban cooperative banks and 58 multi-state cooperative banks are now being brought under the supervisory powers of the Reserve Bank of India (RBI).

An ordinance to with respect to urban co-operative banks and multi-state co-operative banks was passed by the government on Wednesday with President’s approval that will now immediately bring these banks under the governance of the RBI.

The decision by the government to augment RBI’s supervisory powers over the urban and multi-state co-operative banks comes after Finance Minister Nirmala Sitharaman had announced the government’s intentions of bringing the co-operative banks under the RBI’s supervision in Budget 2020. The ordinance to this effect could not be passed in the Budget session of the parliament.

RBI’s supervision will apply to the cooperative banks like they apply to the scheduled commercial banks.

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“The decision to bring 1,540 cooperative banks under RBI’s supervision will provide an assurance to more than 8.6 crore depositors in these banks that their money amounting to Rs 4.84 lakh crore will stay safe,” said Union Minister Prakash Javadekar.

The Minister of Information and Broadcasting also added that the Union Cabinet has given its nod for a scheme “for interest subvention of 2 per cent to Shishu loan category borrowers under Pradhan Mantri Mudra Yojana outstanding as on March 31, 2020, for one year to eligible borrowers.

Besides, the central government also decided to extend the tenure of the OBC Commission by six months in the wake of the coronavirus outbreak, Union minister Prakash Javadekar said. The government also announced Rs 15,000-crore infrastructure fund to provide interest subvention of up to 3% to private players for setting up of dairy, poultry and meat processing units

Cooperative Banks were until now jointly governed by the RBI and respective state governments

The move by the cabinet to grant greater powers to the Reserve Bank of India over the jurisdiction of cooperative banks will provide additional teeth to the central bank in dealing with the cooperative banks that are not exactly registered as bank entities but as cooperative societies. So far, the urban and multi-state cooperative banks are registered and governed by the state governments under the respective Co-operative Societies Act of the concerned states. They also come under RBI jurisdiction under the Banking Regulation Act, 1949.

However, lately, multiple corruption cases, structural weaknesses and pervasive collapses of the cooperative banks had resulted in demands for greater control of these banks, who have now developed substantial deposit and credit base, by a competent authority on par with the nationalised banks. Cooperative banks were hitherto jointly controlled by the RBI and the respective state governments but in the aftermath of the Punjab and Maharashtra Cooperative (PMC) Bank fiasco last year, the Union Cabinet in February 2020 amended Banking Regulation Act to strengthen the cooperative banks in the country.

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