Search

What is the Banking Regulation (Amendment) Bill, 2020?

The Banking Regulation Act, 1949 is a law that regulates banking firms in India. This act has been amended by the Banking Regulation (Amendment) Bill, 2020. Read this article to know that what are the salient features of the Banking Regulation Act 2020.
Jul 13, 2020 10:59 IST
facebook Iconfacebook Iconfacebook Icon
Banking Regulation (Amendment) Bill 2020
Banking Regulation (Amendment) Bill 2020

In view of the deteriorating condition of cooperative banks and commercial banks in the country, the government is taking all possible measures to improve the condition. Working in this direction, the government has passed an ordinance to change the Banking Regulation Act, 1949, due to which the face of India's banking sector has changed forever.

President Shri Ram Nath Kovind has approved the Banking Regulation (Amendment) Ordinance, 2020, on 27 June 2020, to bring all urban cooperative banks and multi-state cooperative banks under the supervision of the Reserve Bank of India.

Now after the passing of the ordinance, all the co-operatives will come under the supervision of the Reserve Bank, so that the interests of the depositors can be protected properly.

Banking Regulation Act, 1949

The Banking Regulation Act, 1949 is a law that regulates banking firms in India. It was passed as the Banking Companies Act 1949. It came into force from 16 March 1949 and was changed to the 
Banking Regulation Act,1949 from 1 March 1966.

This act; Empowers the Reserve Bank of India (RBI) to; 

1.Issue license to commercial banks.

2. Regulate shareholders' shareholding and voting rights.

3. Supervises the appointment of boards and management. 

4. Regulates the operations of banks, giving instructions for audit. 

5. Control moratorium, merger, and liquidation.

6. Issues instructions to the banks in the interests of public welfare & banking policy.

7. Impose a penalty on banks if required.

Let us know what changes have been made in the Banking Regulation Act, 1949 by the Banking 
Regulation (Amendment) Bill, 2020.

The Banking Regulation Act, 1949, does not apply to certain cooperative societies. Namely;

a. Primary agricultural credit societies.

b. Cooperative land mortgage.

c. Any other cooperative societies.

1. The Banking Regulation (Amendment) Bill, 2020 amends this provision to state that the 
Regulation Act,1949 will not apply to: 

(a). Primary agricultural credit societies, and 

(b). Cooperative societies whose principal business is long term financing for agricultural development.  

Other provisions say that these 2 societies must not: 

(a) use the term ‘bank’, ‘banker’ or ‘banking’ in their name or in connection with their business,

(b) Act as an entity that clears cheque.

2. Issuance of shares and securities by Co-Operative Banks: The Bill envisages that co-operative banks may issue equity shares, special shares at face value or at a premium, preference shares to its members, or to any other person residing within their area of operations. 

3. The Bill states that no person shall be entitled to demand payment for the surrender of shares issued to him by the cooperative bank. In addition, a cooperative bank cannot withdraw or reduce its share capital except as directed by the RBI.

4. Supervision of Board of Directors: The Act states that RBI can supersede the Board of Directors of the multi-state co-operative bank for up to five years with certain conditions (in the public interest or to protect depositors).

5. Power to give exemption to Co-Operative Banks: The bill states that the RBI may exempt co-operative banks from certain provisions of the Act through notification. These provisions are related to; employment, the qualification of the board of directors and, the appointment of a chairman. RBI will decide who will get relaxation in employment?

6. The Banking Regulation Act, 1949 states that co-operative banks cannot open a new place of business or change the location of the banks outside of the village, town, or city in which it is currently located without permission from RBI. The Banking Regulation (Amendment) Bill, 2020 discards this provision.

It is expected that due to the change in the Banking Regulation Act, 1949, political interference in the appointment of officers of the cooperative banks of the country will be reduced and their working style will change which will increase the confidence of the general public in the banking system of India. 

So these were some important features of the Banking Regulation (Amendment) Bill, 2020. this article is very important for mains exams like UPSC and state PSCs.

What is a bad bank which is recommended by the Indian Banking Association (IBA)?

What is the Floating Rate Bond?