Bill to amend Banking Regulation Act

Syllabus subtopic: Government Policies and Interventions for Development in various sectors and Issues arising out of their Design and Implementation.

Prelims and Mains focus: about the amendment and its significance; about steps taken in banking sector

News: The Parliament is likely to clear a Bill to amend Banking Regulation Act during the second leg of Budget session. The session ends on April 3.

Cooperative Banks in India

There are 1,540 co-operative banks with a depositor base of 86 million having total savings of about Rs.5 lakh crore.

Objective of the amendment

To bring multi-state co-operative banks under effective regulation of RBI, in order to address weaknesses in co-operative banking sector.

The proposed legislation will help prevent a repeat of Punjab and Maharashtra Cooperative Bank-like crisis.

Steps taken by the government in banking sector

In the last couple of years, the Department of Financial Services has taken several steps to promote responsive and responsible banking.

As part of clean banking initiative, project cash flows were ring-fenced, enforcement of terms of loan agreements and prior validation of backward and forward linkages were made integral to lending processes.

Besides, the number of banks in loan consortium was capped, reducing borrowers' ability to play one lender off against another.

This was accompanied by data driven risk scoring and scrutiny, comprehensive diligence across data sources and strengthened credit assessment.

To ensure financial health of public sector banks (PSBs), recapitalization of Rs.4 lakh crore was undertaken in the last five years. Provision coverage ratio reached a record high of 77 per cent. NPA and slippages are declining with improved asset quality.

As a result of various initiatives taken by the government the number of PSBs under Prompt Corrective Action (PCA) is down from 11 in 2017 to four.

As many as 12 out of 18 banks are in profit this year as against 19 out of 21 in loss just two years ago with the help of record recovery and reduction in bad loans.

Source: Livemint

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