Multi-state co-ops brought under RBI control

The Union Cabinet on Wednesday approved amendments to the Banking Regulation Act to give powers to the Reserve Bank of India (RBI) to issue licences to multi-state cooperative banks and bring them under the ambit of the Deposit Credit Insurance and Guarantee Scheme.

This will bring 35 multi-state cooperative banks under the RBI's regulatory framework on the line of other cooperative banks.

The Reserve Bank of India made the recommendations following the fact that Supreme Court last year had shot down RBI 's power as far as licensing of these banks are concerned. After the Cabinet nod, the proposal will go for the Parliamentary approval.

According to banking sources, the cabinet is of the view that the licences of RBI to these multistate banks stand valid and consequently, depositors in these banks will be able to get cover under the Deposit Insurance and credit Guarantee Corporation ( DICGC). Moreover, the RBI will have the power to supersede the board of these banks if the requirement comes across.

On the other hand, under the new arrangement, if it fructifies, the role of Central Registrar which is central government bodies and the apex body for the local registrar of cooperative societies will remain responsible for the administration and operational side of the management.

According to sources, the government was contemplating amending the Banking Regulation Act to bring in these changes instead of tampering with the Multistate cooperative Act. This is because amendment of the later will require changing the norms in local cooperatives as well.

Sources said that it is important for the RBI to have substantive power on these cooperative banks as otherwise the regulation at the time of any crisis becomes difficult.

The Cabinet also approved the amendments to the Securities Contracts (Regulation) Act of 1956, and the Depositories Act to demutualise the stock exchanges in the country.

Both the bills had lapsed with the dissolution of the Lok Sabha, and the approval would enable the government to re-introduce them in Parliament. The amendment to the Banking Regulation Act, of 1949 follows a Supreme Court order on the subject.

The changes in the SCRA was required to enable the Securities and Exchange Board of India to approve the demutualisation scheme of the stock exchanges.

The bills had been introduced in Parliament by the former government on the basis of the recommendations made by the Joint Parliamentary Committee on stock scam of 2001.

The changes in the Depositories Act of 1996, would also give a statutory backing to the derivatives market, which are outside the purview of the definition of securities so far.