In a letter addressed to the urban cooperative banks under the Western Region, the Reserve Bank of India has announced a partial and temporary relief on the issue of refund of share capital.
Sahakar Bharati leader and one of the members of the RBI Board representing the UCB sector, Satish Marathe has hailed the decision. Calling it an interim relief, Marathe has pasted the letter from the RBI’s CGM on his FB wall.
Titled “Banking Regulation (Amendment) Act, 2020 – Section 12/2YW) read with Section 56 of the Banking Regulation Act, 1949 – Refund of share capital”, the letter permits UCBs which maintain CRAR of 9% or above to refund the value of share capital to their members or nominees / heirs of deceased members on demand.
Several cooperative leaders have talked against this provision of Banking Regulation (Amendment) Act, 2020, wherein they are not permitted to return share capital without seeking RBI’s greenlight.
The letter delivered to UCBs on Wednesday reads “As you are aware, section 4 of the Banking Regulation (Amendment) Act, 2020 has come into force for Primary (Urban) Co-operative Banks (UCBs) with effect from June 29,2020. Pursuant to the amendments, Section 12(2)(ii) read with Section 56 of the Banking Regulation Act, 1949 prohibits withdrawal / reduction in share capital by UCBS unless Reserve Bank of India specifies the extent up to which and the conditions subject to which such withdrawal / reduction may take place.”
“Although the aforesaid matter is under examination along with other relevant aspects, it has been decided, in the interim, to permit UCBs which maintain CRAR of 9% or above (as per the latest available audited / assessed financials) to refund the value of share capital to their members or nominees / heirs of deceased members on demand, as hitherto”, goes on the letter from RBI.
Those opposing the BR Act have argued that the cooperative character is diluted by allowing UCBs to raise share capital through market. This means an investor, and not necessarily a person who participates in the business activity of a cooperative institution, either as a depositor or a borrower, can become a shareholder and technically can become a Director or Chairman of a UCB, they argue.
The other feature of the Amended Act being challenged is when the merger or taking over of a cooperative by another institution takes place. The amendment in the BR Act enables Reserve Bank of India to formulate a scheme of merger or amalgamation irrespective of whether the shareholders or directors either the institution which is being taken over, or that of the Cooperative bank which is taking over, are in favour of such merger, amalgamation or not. Several co-operators have voiced their concern at this provision.