The government is working on a draft legislation to completely empower the Reserve Bank of India over urban cooperative banks as a fallout of the PMC Bank scam, sources told CNBC-TV18.
The proposal is to hand over the complete regulation and supervision of banking activities of UCBs to RBI via the Banking Regulation Act. This will include the power to supersede the management of urban cooperative banks by RBI, maybe even have a say in appointments, and make the entire corporate governance structure of a scheduled commercial bank mandatory for those UCBs who want to continue functioning as a 'bank'. This may also include a new fit and proper criteria for UCBs in consultation with RBI.
CNBC-TV18 has learnt that the agriculture ministry has agreed to consequent amendments to the Multi-State Cooperative Societies Act, which says, for all banking activities these entities will be regulated by the Banking Regulation Act under the supervision of the RBI.
To take this forward, amendments to the Banking Regulation Act are being worked out by the Dept of Financial Services under the finance ministry, along with changes in the Multi-State Cooperative Societies Act piloted by the agriculture ministry.
The government’s key worry is the “loose regulation” of urban cooperative banks as they fall under a multi regulatory regime of RBI, Registrar of Societies and state governments.
Sources tell CNBCTV18, “Any institution using the term bank will not be allowed to go loose due to a multi regulatory regime thereby impacting depositors interest.”
There may also be a possibility that the categorisation of UCBs itself may undergo a major change, with the government suggesting a Small Finance Bank structure for cooperative banks or increase the capital base via a revised fit and proper criteria. UCBs unable to meet the new criteria may not be allowed to use the term bank.
On November 7, RBI governor, Shaktikanta Das after meeting FM Nirmala Sitharaman said, “We are working on amendments to cooperative societies act. We have given our inputs to the government on amendments to cooperative societies acts. It is upto the government to take a call.”
Sources say interministerial and inter regulatory discussions on the proposed amendments are underway and it will soon go for cabinet approval.