RBI can restructure struggling Banks without moratorium
The Government of India through the Banking Regulation (Amendment) Ordinance, 2020, authorized the Reserve Bank of India (RBI) to prepare a restructuring or amalgamation scheme for a struggling bank without first placing it under a moratorium, which freezes or limits withdrawals by depositors. This ordinance will bring significant change in law that will enable RBI to counter the stress prevalent in the banking sector while ensuring that the lender banks’ operations are not interrupted by placing it under a moratorium.
The RBI had earlier this year placed Yes Bank under a moratorium and then worked out a scheme to secure its functioning. Also, Punjab and Maharashtra Cooperative Bank was placed under a moratorium last year following a fraud.
Further, the government is also of the view that Covid – 19 has increased stress in the economy and on banks. And, this change will bring the much needed calm and help the banking regulator to deal with stress in a better way.
Hence, the ordinance seeks to amend the provisions of Section 45 of the Banking Regulation Act, 1949 which says that RBI would first place a bank under a moratorium, when withdrawals by depositors are restricted or stopped, and then prepare a scheme. RBI had been working on the issue and was seeking a change in the law after realisation of the facts.
