Cabinet clears amendment to banking laws to strengthen co-op banks

New Delhi: In order to protect interest of depositors, the Union Cabinet on Wednesday approved amendment to Banking Regulation Act to strengthen cooperative banks and avoid PMC Bank like crisis.

There are 1,540 cooperative banks with depositor base of 8.60 crore having total savings of about Rs 5 lakh crore.

The proposed law seeks to enforce banking regulation guidelines of the RBI in cooperative banks, while administrative issues will still be guided by Registrar of Cooperative, Information and Broadcasting Minister Prakash Javadekar said while briefing media about the Cabinet decisions.

Observing that the changes will help strengthen financial stability, he said qualifications would be set for appointing CEO of cooperative banks and the RBI permission would be sought before appointment as followed in case of commercial banks.

Audit would be as per the RBI guidelines and the central bank can also supersede the board if any cooperative bank is under stress, he said.

Cooperative bank will be given time to comply with the RBI guidelines in phased manner, he added. The cabinet approval is in line with the Budget announcement made by Finance Minister Nirmala Sitharaman on Saturday. Sitharaman also proposed in the Budget to raise the insurance cover on saving deposits five times to Rs 5 lakh.