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Revised Banking Regulation Act

  • Category
  • Published
    13th Feb, 2020


Recently, Union Cabinet approved amendments to the Banking Regulation Act to empower the central bank to have greater control over cooperative banks.


  • Union cabinet clearedchanges in Banking Regulation Act to give RBI wider powers.
  • Ambit:The amendments will apply to all urban co-operative banks and multi-state cooperative banks.
    • They will not be applicable to rural cooperatives.
    • The changes will cover nearly 1,500 cooperative banks and will be implemented in a phased manner.
  • Objective: This was done in order to prevent malpractices, ensure better regulation and prevent frauds such as the one seen at Punjab and Maharashtra Co-operative Bank Ltd (PMC).
    • Amendment to Banking Regulation Act aims to strengthen cooperative banks and avoid PMC Bank like crisis.
  • PMC scam: Due to PMC scam lakhs of customers faced difficulties in withdrawing their money due to restrictions imposed by the RBI.
    • Urban cooperative banks reported nearly 1,000 cases of fraud worth more than ?220 crore in past five fiscal years.
  • Current regulations:Cooperative banks are currently under dual control of Registrar of Cooperative Societies and RBI.
    • The role of registrar of cooperative societies includes incorporation, registration, management, audit, supersession of board and liquidation.
    • RBI is responsible for regulatory functions such maintaining cash reserve and capital adequacy, among others.
  • New changes:The administrative role will continue to be done by the Registrar of Cooperative Societies.


  • Audit under RBI norms:Cooperative banks will be brought under the regulation of the RBI. They will be audited according to RBI’s norms.
    • Cooperative banks will now be required to meet stricter capital norms.
    • The amendments will now give legislative powers to the central bank.
  • Appointments with permission of RBI:Appointments of chief executives will also require permission from the banking regulator, as is the case for commercial banks.
  • RBI takeover in case of stress: Central bank can supersede the board and take control, in consultation with state government, if any cooperative bank is under stress.
  • Improve financial stability: To strengthen the Cooperative Banks, amendments to the Banking Regulation Act will help increase professionalism, enable access to capital and improving governance and oversight for sound banking through the RBI.
    • Observingthe new changes will help strengthen financial stability.

Additional measures

  • Increased deposit insurance: In order to ensure that depositors' money is safe, Budget 2020 permitted the Deposit Insurance and Credit Guarantee Corporation (DICGC) to increase deposit insurance coverage for a depositor, which is now Rs 1 lakh, to Rs 5 lakh per depositor.

Facts about Cooperatives

  • Rural cooperatives are under state-policies: RBI has considerable control over urban cooperative bank but has a limited control over the rural cooperative banks which are guided by state-level policies.
  • Assets of rural cooperatives are higher:As per RBI’s Trends and Progress in Banking Report, as of March-end 2018, rural co-operative banks accounted for 64.7 percent of the total assets of cooperatives.
    • Rural cooperatives are also more in number as compared to urban cooperative banks.

Banking Regulation Act, 1949

  • Banking Regulation Act, 1949 is legislation in India that regulates all banking firms.
  • Initially, this act was passed as Banking Companies Act, 1949 and it was applicable to whole of India except Jammu & Kashmir. It became applicable to Jammu and Kashmir from 1956.
    • Initially, the law was applicable only to banking companies.
    • But, 1965 it was amended to make it applicable to cooperative banks and to introduce other changes.
    • Primary Agricultural Credit Society and cooperative land mortgage banks are excluded from the Banking Regulation Act 1949.
  • RBI control: RBI regulates and supervises the banking functions of State Cooperative Banks (StCBs)/District Central Cooperative Banks (DCCB)/Urban Cooperative Banks (UCBs) under the various provisions of the Banking Regulation Act, 1949.
  • Section 56:In 1965, the Act was amended to include cooperative banks under its purview by adding the Section 56. Cooperative banks, which operate only in one state, are formed and run by the state government.
  • RBI deals with NPAs:In 2017, government amended the Banking Regulation Act, 1949 by adding provisions for handling cases related to stressed assets or non-performing assets (NPAs) of banks, by initiating insolvency resolution process under the Insolvency and Bankruptcy Code, 2016.
  • Section 35A:Section 35A of the Banking Regulation Act, 1949 vests power in the RBI to give directions to banks and can take action, "to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company".

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