Banking Regulation (Amendment) Ordinance, 2020

The Banking Regulation (Amendment) Ordinance, 2020 (‘BR Ordinance’) was promulgated on June 26, 2020 and seeks to amend the Banking Regulation Act, 1949 (‘BR Act’), by inter-alia bringing within its ambit, various co-operative banks with the objective of protecting the interests of depositors and increasing the supervision of the RBI over co-operative banks. The BR Act will continue to exclude: (a) primary agricultural credit societies, and (b) co-operative societies whose principal business is long term financing for agricultural development, which (i) do not use the words ‘bank’, ‘banker’ or ‘banking’ in their name or in connection with their business; and (ii) do not act as an entity that clears cheques.

The BR Ordinance further provides that a co-operative bank may issue equity shares, preference shares, or special shares on face value or at a premium to its members or to any other person residing within its area of operation. Further, it may issue unsecured debentures or bonds or similar securities with maturity of ten or more years to such persons. Such issuances will be subject to the prior approval of the RBI, and any other conditions as may be specified by RBI. A co-operative bank cannot withdraw or reduce its share capital, except as specified by the RBI, and no person will be entitled to demand payment towards surrender of shares issued to him by a co-operative bank.

The BR Ordinance also restricts any bank, on which moratorium is imposed by the Central Government under the BR Act, from granting any loans or advances or making investments in any credit instruments during the period of such moratorium.

The RBI can now, independent of the moratorium, formulate a scheme of reconstruction or amalgamation of a banking company, if it is satisfied that such reconstruction or amalgamation is needed to secure proper management of the bank, or in the interest of depositors, general public, or the banking system.

Published In:Inter Alia - Quarterly Edition - June 2020 [ English Chinese japanese ]
Date: June 30, 2020