Banking Regulation (Amendment) Act, 2020

Key changes:
Now, Provisions applicable to banking companies will also applicable to cooperative
banks. This ensures that cooperative banks are equally subject to better governance
and sound banking regulations through the Reserve Bank of India (RBI).
With the amendments, RBI will be able to undertake a scheme of amalgamation of a
bank without placing it under moratorium.
It will help the central bank to develop a scheme to ensure the interest of the public,
banking system, account holders in the bank and banking company’s proper
management, without disrupting any banking functionalities.
The amendments also allow cooperative banks to raise money via public issues and
private placements of equity or preference shares as well as unsecured
debentures, with the central’s bank’s nod.
However, the changes will not:
Affect the existing powers of the state registrars of co-operative societies under state
laws.
Apply to Primary Agricultural Credit Societies (PACS) or co-operative societies
whose primary object and principal business is long-term finance for agricultural
development, and which do not use the words “bank”, “banker” or “banking”.
Why this was necessary?
This was felt necessary in the wake of the recent Punjab & Maharashtra Cooperative
(PMC) Bank crisis.
Cooperative banks have 8.6 lakh account holders, with a total deposit of about ₹5
lakh crore.
Besides, Urban cooperative banks reported nearly 1,000 cases of fraud worth more
than ₹220 crore in past five fiscal years.
How cooperative banks are regulated?
Cooperative banks are currently under the dual control of the Registrar of Cooperative
Societies and RBI. While the role of registrar of cooperative societies includes
incorporation, registration, management, audit, supersession of board and liquidation,
RBI is responsible for regulatory functions such as maintaining cash reserve and
capital adequacy, among others.

Certain amendments were considered necessary in the said Act to provide for better
management and proper regulation of co-operative banks and to ensure that the affairs
of the co-operative banks are conducted in a manner that protects the interests of the
depositors, by increasing professionalism, enabling access to capital, improving
governance and ensuring sound banking through the Reserve Bank of India.
Further amendments were proposed to be made in Section 45 of the Act to enable the
Reserve Bank of India to make a scheme to protect the interests of the public, the
banking system, depositors or to secure the banking company’s proper management,
without first making an order of moratorium so as to avoid disruptions in the financial
system.
Following are the features:
(i) substitution of Section 3 to provide that the Act shall not apply to— (a) a primary
agricultural credit society; or (b) a co-operative society whose primary object and
principal business is providing of long term finance for agricultural development, if
such society does not use as part of its name, or in connection with its business, the
words “bank”, “banker” or “banking” and does not act as drawee of cheques;
(ii) amendment of Section 45 to address the potential disruptions in the financial
system by providing for the Reserve Bank of India to prepare a scheme for the
reconstruction or amalgamation of the banking company without the necessity of first
making an order of moratorium;
(iii) amendment of Section 56 to provide that notwithstanding anything contained in
any other law for the time being in force, the provisions of the Act shall apply to co-
operative societies, subject to the modifications specified therein.