Banking Regulation Act – NCP’s Dissent to RBI’s Supervision Unfolds A New Chapter.

The dual regulatory supervision model had been prevailing across the banking sector for a long. However, recent fury suggests that the notion might have become a distant dream. The argument mounts distress for the cooperative banks as they now get acceded to direct scrutiny from the RBI.

NCP chief Sharad Pawar rages the recent amendments in the banking law and believes that the Centre has taken the nudge a step further by infringing the well-versed Banking Regulation Act, 1949. The remarkable revisions get contemplated as an attempt to weaken the cooperative banking sector. Why did Parliament sanction its approval of the changes in September 2020? The question has reverberated to many officials in the account of the matter. NCP might have an insight as it opposes the law sternly and aggressively, aiming to pinpoint a task force for further investigation.

The proposed task force will reiterate facts and figures of the amendments. It will get headed by Balasaheb Patel, NCP Leader and Cooperation Minister across Maharashtra’s MVA government. A dial of the spectrum asserts that the Centre is trying to play the hard ball-game with the banking system as it overrides controls over the economy with its adroitness. NCP spokesperson Nawab Malik also had the same belief and castigated the Centre for manipulating the long-standing regulations. The tweaks would have got appreciated if it was in genuine interest, claimed reports.

How are crucial changes being manifested in the Banking Regulation Act?

Cooperative Banks are the regulatory bodies being authoritatively governed and monitored by the Registrar of Societies and the RBI. The discerned pathway has mitigated the banks several times to escape stern checks despite missing the brief and indulging in fraudulent activities. The changes manifested across the banking system have brought in delusional and contradicting opinions. While political ascendancies like the NCP claims it to be an advocacy and a sign of supremacy, the BJP-associated leaders opposed it massively.

According to the latest terms approved by the Centre, the RBI would now be able to authoritative the supersede of the Board of Directors of cooperative banks after discussions on the probe with the concerned state government. However, the alterations in the law have sent shockwaves as previously the apex bank jurisdiction subjected to issuing directives on behalf of multi-state cooperative housings.

The pressure of sustaining their proclamation of enhancing India’s banking avenues has been massive, and the recent upsurge in the numbers of banking frauds might be irksome behind the decision. The trends are ever-changing in the dynamic banking powerhouse, and the urge is for a resilient model of checks and verifications. Keeping this in mind, the RBI has pronounced that the urban cooperative banks will get treated parallel to the commercial banking houses.

The Working Model Of Commercial Banks Being Adopted

In historical events across banks, the cooperative banks have always been derailed compared to their counterparts. The recent changes have dispensed an indication of the overhauling scenario that will get deciphered by the RBI. A cooperative bank following the modification can unveil the opportunity of expanding its operations by issuing equity or preference shares to its members. The shares could get allotted through public offerings or private placements. RBI seems to be incorporating the working model of the commercial banks into the mix as it has gained monumental success.

In recent times, the public sector cooperative banks have failed miserably to adapt to the evolution, and that is why its revenues have hit an all-time low. In case, they can opt for issuing unsecured bonds with debentures or shares with a maturity period of not less than ten years. In retrospect, it means that the non-members can imminently proceed by acquiring stakes in the entity. RBI has dwelled to instill the mechanism to evade the roots of the sick stalling units, contributing immensely to pandemoniums.

What set off the amendments and why are they delusional?

India has emerged as one of the prolific epicenters of urban cooperative banks, but the situation has worsened over the past two years. Though the pandemic has offset some of the beat, it is paramount to discern that these banks constitute a colossal depositor base of 8.6 crores.

Finance Minister Nirmala Sitharaman made certified statements regarding the deterioration of gross non-performing assets of cooperative banks. She explained to the Lok Sabha last year that 277 urban cooperative houses weren’t able to fulfill their financial obligations and were left staggered as fragile. Alongside, hundreds of them were way off in evaluating and meeting the regulatory capital requirements.

If everything gets pinpointed, it resonates like a definite resolution, and the actions got perpetuated to mitigate the high levels of bad loans disrupting the framework. Moreover, the implications of political interference in the regulatory policies have derailed the prospects of these banks. It added to the burgeoning turbulence that the banks suffer, and issuing shares in the markets got overlooked as a way out.

The Nationalist Congress Party has exhibited a delusional precis on the matter. They suspected that the opposition’s objective was to act as a barrier in the parties’ actions. The encroachment was perceived as an attempt to salvage their deteriorating reputation across the public sector.

Almost one-third of India’s 1500-plus cooperative banks are situated in Maharashtra and a total depository base of Rs 2.93 crores. The significant aspect of the holdings is that a massive proportion of these banks are being monitored and controlled by the NCP leaders. The recent amendments will nullify their involvement in the banking system as it would get transposed by supervisors from RBI. The concept is intriguing, if only it can get managed efficiently.

RBI already has burning loopholes to fill, but stepping on the stone standalone without any support will lead to overriding workload. The banks working under the NCP’s directive will now be answerable to the RBI for every misinterpretation and failure, which has been highly overlooked as of now. The Centre has provoked various opinions by its actions over the last year, and if the situation of the urban housing cooperation doesn’t improve then they might have another hanging cliff.