Government is amending Banking Regulation Act to benefit depositors: Nirmala Sitharaman

Union Finance Minister Nirmala Sitharaman said in Parliament that the amendment in the Banking Regulation Act, 1949 to protect interests of the depositors has been brought in by the government.

"We are trying to bring this amendment to protect the depositors. As in some unfortunate situations in banks, depositors are put to hardship," finance minister said in Lok Sabha.

She said the government had introduced the Bill to protect the depositors. Since the government could not pass this bill in the Budget session, an ordinance was brought in, she said.

She informed the lower house that the financial condition of 277 urban co-operative banks was very delicate and that they were reporting losses, while 105 such banks were unable to fulfil their minimum regulatory capital requirement.

She said a total of 47 urban co-operative societies had a negative net worth and 328 urban cooperative banks were having more than 15 per cent gross NPA (Non Performing Assets).

Sitharaman said the gross NPA ratio of urban co-operative banks increased from 7.27 in March 2019 to over 10 per cent in March 2020. Therefore, the Minister said, the government had to bring an ordinance in the interest of the depositors and now that ordinance has to be replaced.

Citing the case of Yes Bank reconstitution scheme, she said it was to protect the interest of the public depositors without making the bank undergo a moratorium period. She also gave an example of BMC bank in which the depositors could not get a resolution till now.

The minister clarified that the Bill will not be applicable to the Primary Agricultural Credit Society. It would not be applicable to the co-operative society as well whose primary business is providing long-term finance for agricultural development. "This will be applicable only on those who bank, banker and banking business in cooperative society," she said.

NPA in the banking system is also expected to rise exponentially due to the stringent lockdown imposed in April and May.

The country’s economy contracted by a shocking 23.9 per cent in the first quarter of the current financial year, owing to the nationwide lockdown imposed since March 25 to contain the spread of the coronavirus pandemic. This amendment bill brings more transparency in the protection of interest of depositors..