The government proposes to end the dual regulatory control over co-operative banks by vesting the audit and inspection powers in the Reserve Bank of India (RBI).
In addition, it is also planning to link the issue of recapitalisation bonds to co-operatives to amendments in respective state co-operative laws.
Minister of state for finance Ananthrao Adsul said the government and RBI will issue the necessary instructions shortly and will also write to the state governments seeking amendments to the state co-operative acts.
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"We hope to announce the plan by the time the winter session of Parliament commences," the minister said.
Finance ministry officials said that the government was putting in place a policy whereby co-operative banks in those states which amend their laws would be eligible for recapitalisation. They added that states have agreed in principle to amend their respective laws governing co-operatives which will end the system of dual control. The recapitalisation package would be in line with the recommendations of the Balasaheb Vikhe Patil committee which had sought to end dual control by the RBI and the state Registrar of Cooperatives over cooperative banks.
Adsul said the government was keen to clean up the co-operative banking system and would stick to the commitments made by it.
The Patil committee had recommended that the Centre and state governments subscribe to revitalisation bonds of up to Rs 800 crore issued by co-operatives in the ratio 60:40. In case of Jammu & Kashmir and the north-eastern states, the proposed ratio was 90:10.
"The actual recapitalisation amount will be known only when the co-operatives come up with their proposals," said an official.
For computation of assistance to the co-operative banks, the committee has suggested that accumulated losses and interest overdue for over three years should be the basis of calculation.
It had suggested a 10-year tenure for the recapitalisation bonds and said these bonds would be extinguished without any redemption of the principal. In the process, a part of the outstanding amount in revitalisation assistance account for the co-operative banks will be wiped off each year.
The recapitalisation would help the co-operative banks transform themselves into scheduled commercial banks. The committee had also said that scheduling of district co-operative banks will allow them to borrow funds from the Reserve Bank of India and National Bank for Agriculture and Rural Development (Nabard) which will reduce their dependence on state co-operative banks.