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India Approves Ordinance To Bring Cooperative Banks Under RBI’s Supervision

The Reserve Bank of India has toughened its stance against urban cooperative banks since the collapse of PMC Bank last year.

 A depositor of Punjab and Maharashtra Cooperative (PMC) bank displays a placard during a protest over the banks crisis, outside the Reserve Bank of India building, in Mumbai. Image used for representation. (Source: PTI)
A depositor of Punjab and Maharashtra Cooperative (PMC) bank displays a placard during a protest over the banks crisis, outside the Reserve Bank of India building, in Mumbai. Image used for representation. (Source: PTI)

The cabinet approved an ordinance to bring urban and multi-state cooperative banks under the supervision of the Reserve Bank of India, in a move aimed at giving the regulator greater control over such lenders.

The ordinance will help ensure that money of 8.6 crore depositors in about 1,540 urban and multi-state cooperative banks is safe, Information and Broadcasting Minister Prakash Javadekar told reporters after the meeting.

This is the second attempt to legalise the framework as the amendments to Banking Regulation Act, 1949, could not be approved in the Budget Session of Parliament cut short by the coronavirus outbreak. In February, the cabinet had approved the changes in the act, giving the RBI powers such as to supersede banks’ board and appoint a chief executive officer, among others. The bill was introduced in Lok Sabha in March.

According to the bill, the RBI, in public interest, can supersede the management of a multi-state cooperative bank for up to five years and appoint an administrator. In case of a cooperative bank, registered with the Registrar of Cooperative Societies of a state, the regulator will have to consult the state government concerned before issuing an order to supersede the board.

Since the collapse of Punjab and Maharashtra Cooperative Bank, RBI has toughened its stance against cooperative banks. In January, the banking regulator had introduced a new supervisory action framework for urban cooperative banks, similar to its prompt corrective action framework that places restrictions on scheduled commercial banks with weak financial and operational metrics.

Interest Subvention On Small Loans

The cabinet also approved a 2% interest rate subvention for all Shishu loans up to Rs 50,000 under the Pradhan Mantri Mudra Yojana.

The facility will be extended to eligible borrowers—with outstanding as on March 31, 2020, and not classified as a non-performing asset—for a period of 12 months.

The scheme is a part of the Rs 20-lakh-crore 'Atmanirbhar Bharat' package—a post-pandemic rescue measure—announced by Prime Minister Narendra Modi in May to help revive the economy that’s headed for its first full-year contraction in more than four decades. That was followed by Finance Minister Nirmala Sitharaman's press conferences, outlining the details of the package.

Other Cabinet Decisions

  • Animal Husbandry Infrastructure Development Fund will be set up and the government will provide 3% interest subvention to eligible beneficiaries.
  • Indian National Space Promotion and Authorisation Centre will be formed to provide a level-playing field for private sector to use the nation's space infrastructure.
  • Additional investment by ONGC Videsh Ltd.—the overseas arm of ONGC—for development of blocks A1 and A3 Blocks of Myanmar.