Cabinet okay for bill on full RBI regulation of co-ops

New Delhi, March 23 | Updated: Mar 24 2006, 05:30am hrs
With a view to bringing co-operative banks under the regulatory ambit of the Reserve Bank of India, the Cabinet gave its approval to amend the Banking Regulations (Amendent) Bill, 2005. Until now, the RBI had no control over the co-operative banks, which came under the ambit of the state governments. The amendment would accord greater operational flexibility and regulatory powers to the central bank.

This amendment would allow the central bank to look at the regulatory aspect of co-operative banks, including licences, while state governments would focus on the implementaion part. The Banking Regulation (Amendment) Bill, 2005 was introduced in Parliament in May 2005. However, it was refered to the standing committee on finance for scrutiny. The committee presented its report to the Lok Sabha in December with the recommendation to carry out certain modifications in the Bill.

The present provisions in the Banking Regulation Act, 1949 are found to be inadequate in the context of the reforms taking place in the financial sector. The proposed amendment will help the RBI in laying down policy and issuing directions for monitoring them. The finance ministry has already indicated that it may allow profit-making co-operative banks to open more branches. Finance minister P Chidambaram has earlier said that the issue would be discussed with the RBI. That apart, the RBI Bill, 2005 will be amended to accept the definitions of the `Repo' and `Reverse Repo' expressions to bring conformity with market usage and the common practice followed internationally. `Repo' and `Reverse Repo' represent two sides of the same transaction between two parties involving borrowing and lending of funds. The government is also planning to go ahead with the restructuring of the co-operative banks for which a Rs 1500 crore financial package would be provided.