In a letter written to the Finance Ministry and signed by Chief executive of NAFCUB, Subhas Gupta the apex body of urban cooperative banks has strongly condemned the efforts to choke credit cooperatives in the country.
In a mail sent to Ministry well within the stipulated time NAFCUB said “Please find enclosed Views of NAFCUB with regard to proposed Bill “Banning of Unregulated Deposits Scheme and Protection of Depositors Interest Bill 2015” for your kind perusal. We have already forwarded our views by email at bo2@nic.in, sudhir.s@nic.in and ssaksena@nic.in on April 29, 2016”, it added.
NAFCUB is the apex level promotional and advocacy body for the urban cooperative credit sector comprising of 1570 urban cooperative banks and over 50,000 cooperative credit societies that are registered under the Multistate Cooperative Societies Act and the various state cooperative societies acts.
1.Amendment to section 67 of the MSCS Act2002.
There is no denying the fact that in respect of multistate cooperative societies, the regulations have to be revisited and tightened. The MSCS Act 2002 needs to be amended so that unscrupulous elements do not take advantage of the weak spots in regulation and tarnish the name of cooperative movement.
In this context, there are many observations made by the Parliamentary Standing Committee on Finance, one of them being suggestion by the Working Group on Banking of the FSLRC which says, “Any co-operative society accepting deposits exceeding a specified value must fall within the regulatory purview of the banking regulator.”
The Parliamentary Standing Committee has made following recommendations on multistate cooperative societies, specifically
“In this regard, the Committee would also suggest that the regulatory regime in respect of Multi-State Cooperatives should be streamlined and tightened so that they do not become an instrument of diverting and shielding illegal funds from ponzi companies etc.”
It had clearly asked for streamlining and tightening the regulatory regime in respect of multistate cooperative societies. It did not recommend cutting of the very roots of multistate cooperatives by proposing an amendment that would prohibit them from accepting deposits from their members, as has been envisaged in the proposed Bill.
While proposing banning of multistate societies from accepting deposits from members, the fact that there are a large number of salary earner societies many operating for more than half a century will have to close down if the proposal is carried out, does not seem to have been considered at all.
The recommended amendment to the RBI Act 1934 is enough safeguard for the multistate cooperative societies as well.
Also the additional steps taken by the Central Registrar in 2014 to arrest any proliferation of multi state cooperative societies and enlisting of support of state registrars in continuous monitoring and supervision of functioning of multistate cooperatives will strengthen the regulatory mechanism.
If need be, as suggested by working group on banking of FSRLC, transferring of regulation and supervision of multistate cooperatives with membership beyond a specific figure to RBI through legislative changes or capping of deposits as a specified multiples of owned funds could be other suggestions that can be considered.
While defining “Regulated Deposit Scheme”, it is said that any scheme made or offered by a cooperative society registered under the Cooperative Societies Act 1912 or a society registered or deemed to be registered under any law relating to cooperative societies for the time being in force in any state, will be defined as “regulated deposit scheme,”. At the same time multistate cooperative societies are being denied to offer any “regulated deposit scheme” through a proposed amendment to the MSCS Act2002. The Cooperative Societies Act1912 is the predecessor to the Multi Unit Cooperative Societies Act 1942, MSCS Act1984 and finally the MSCS Act2002.
In the definition of “a deposit taking establishment” for the purposes of this bill, cooperative societies and multistate cooperative societies are included among other entities, which means that multistate cooperatives are deposit taking establishment. Then if MSCS Act 2002 is amended to prohibit the multistate societies from accepting deposits from public, members and non voting members, how do they come under the definition of deposit taking establishment.
It is therefore clear that multistate cooperative society must fall under the definition of a deposit taking establishment which will require that the proposed amendment to section 67 of MSCS Act 2002 is dropped.
The RBI Act 1934 is proposed to be amended to clarify that deposits can be accepted by cooperative societies registered under state cooperative societies acts only from their members who are voting members. This is to make it clear that cooperative societies cannot accept deposits from non members and any other type of members who are not eligible to vote. The same amendment should be made for the multistate cooperative societies. The proposed amendment to Sec67 of the MSCS Act 2002 is highly discriminatory towards multistate cooperatives.
Above all, this kind of restriction on a multi state cooperative society which amounts to its being completely choked to death and it will run completely counter to the letter and spirit of the 97th Constitution Amendment, which not only recognises formation of cooperatives as peoples fundamental right but also enjoins upon the State to endeavour to create conducive climate for the formation and strengthening of cooperatives.
It is therefore strong view of the NAFCUB that the proposed amendments to section67 of the MSCS Act2002 should be dropped.
2.Ensuring that cooperative banks are not affected by the proposed bill
All the cooperative banks are registered as cooperative societies and are given banking licence to do banking business. All cooperative banks including the multistate cooperative banks are under the regulation of RBI through the Banking Regulations Act 1949.It is therefore clear that the proposed Banning of Unregulated Deposits Scheme and Protection of Depositors’ Interests Bill 2015 should not have any applicability to the cooperative banks.
There are some ambiguities that have crept in while drafting definitions of “deposit” and “deposit taking establishment” that needs to be revisited. It should be made clear and unambiguous that cooperative banks do not come under the category of deposit taking establishment and they should not in any way be affected by passing of this bill.
The bill defines deposit in a manner to exclude loans from a scheduled bank or a cooperative bank or any other banking company as defined in the sec.5( c) of the Banking Regulation Act 1949.
This clearly indicates that the Bill recognises cooperative banks as part of banking system.
However, the definition of “deposit taking establishment” for the purpose of the Bill does not include, “a banking company, a corresponding new bank, State Bank of India and a Subsidiary Bank defined in sec5 of Banking Regulations Act 1949”. This appears to give a meaning that cooperative banks are not excluded from being included as deposit taking establishment for the purposes of this Bill and that that legislation when passed as “Banning of Unregulated Deposits Scheme and Protection of Depositors’ Interests Bill 2015” will be applicable to the cooperative banks. This, NAFCUB is certain, is not the intention of the government.
The definition should therefore be corrected to
“ii) a banking company, a corresponding new bank, State Bank of India and a Subsidiary Bank defined in sec5 of Banking Regulations Act 1949, a cooperative bank as defined in Sec5cci(Sec 56 AACS) and a multistate cooperative bank as defined I Sec. cciia(Sec56 AACS).”
This will ensure that definition of deposit taking establishment will not have any ambiguity with regard to cooperative banks.