September 16, 2020
Saugata Ray speaks on The Banking Regulation (Amendment) Bill, 2020
FULL TRANSCRIPT
I speak on The Banking Regulation (Amendment) Bill, which took some time in coming as it was introduced in the House in March. In the meantime, the government enacted an Ordinance and we are also passing the Ordinance.
Sir, I support the contention of the Honourable Member here who mentioned the success of The South Indian Co-operative Bank, and wherein he also said that this Bill is an infringement on States’ rights. When the registrar of cooperative banks is already there in the States, to appoint the RBI as the overall regulator is a wrong step. The Member has also mentioned that the RBI is overloaded.
So the question arises as to why the government brought this Bill in a hurry. The main reason was the collapse of the Punjab and Maharashtra Co-operative Bank. A large number of depositors were put in difficulty and the RBI had to impose restrictions on withdrawal and suspend the bank’s business. The depositors of PMC Bank demonstrated before the Finance Minister when she went to Mumbai. So she thought, I must do something otherwise I will face demonstrations whenever I have to be in Mumbai. So that was why the Bill was brought today in a hurry.
Sir, the cooperative banking structure in this country is huge. We have almost 1,544 urban cooperative banks, 352 district central cooperative banks and 34 state central cooperative banks. The total deposit of all these banks together will be around Rs 10 lakh crore.
Now, the government says the Ordinance seeks to protect the interests of depositors in cooperative banks by improving governance and by oversight, through the extension of the powers already available with the RBI with respect of other banks, to cooperative banks as well. This Bill will provide sound banking regulation, ensure professionalism and enable banks’ access to capital.
Sir, the main question is that the RBI has not been the most successful regulator. As an Honourable Member pointed out, it is already overloaded. It failed to take preventive action in the case of Yes Bank, where at one time the depositors were allowed to only withdraw Rs 1,000.
Now what happens with this Bill is that The Banking Regulation Act will enjoy supremacy over cooperative banks. The power of the RBI to remove management or draw plans to merge or dissolve cooperative banks will override the powers of the State registrar of cooperatives. So, as has been said earlier, it is a clear infringement on States’ rights.
The other point is that now, the cooperative banks will be allowed to issue shares, debentures and other securities. This will allow cooperative banks to access financial markets, leading to improvement in the equity of the banks. Now what happens in a joint stock company is that people have voting rights according to their shareholding. But in a cooperative bank, one member means one vote, so you are actually taking away the structure on which cooperatives have been built.
I agree that there have been some bad apples among the cooperatives. Between 2013 and 2018, 127 banks had to be shut down by the RBI. Most of them were unable to pay their depositors. Four lakh depositors had to be ultimately reimbursed through a deposit insurance scheme. As you know, Sir, any deposit insurance scheme covers depositors upto Rs 5 lakh.
So basically, the concept of the Bill is flawed. Just for one Punjab and Maharashtra Co-operative Bank, you cannot take away the power of the cooperative banks. Also, you cannot short-charge the cooperative banks which are functioning well and which have been built through a lot of sacrifice and hard work by their original promoters. The Cooperative Movement has been successful in Maharashtra, Gujarat and southern India. Actually, this government is hampering the Cooperative Movement.
Lastly, I want to mention the three main clauses that are being amended. One is section 3, through which agricultural credit societies are being kept outside the purview of this Act. I agree with that part. Then there is an amendment to section 45, providing power to the RBI to reconstruct or amalgamate banks, and to section 56, allowing cooperative banks to issue shares and debentures.
I do not think that such a Bill was necessary. I do not think that the RBI has proven to be the best regulator in the country. I do not think that the power of the State cooperatives should be taken away. I still think that the government should try to encourage cooperatives and cooperative banking.
