FM says bank laws will be tightened

'Tax reforms in the offing'

Finance Minister P Chidambaram today said the government would come out with a comprehensive amendment to the Banking Regulation Act, 1949, during the Budget session of Parliament to regulate the functioning of cooperative banks.

He was replying to a debate on the Banking Regulation (Amendment) and Miscellaneous Provisions Bill, which was later passed by the Lok Sabha.

He assured members that the Bill was only an emergency response to the Supreme Court judgment on multi-state cooperatives, which said states did not have the power to notify multi-state cooperatives as banks.

Chidambaram said he was consulting the Reserve Bank of India for bringing in a comprehensive legislation.

"I am not happy with the state of cooperative banks," he said, adding that while public sector banks had become stronger, the health of cooperative banks had deteriorated. "A very important arm of lending is affected," he said.

He regretted that the state governments were not meeting their responsibility of monitoring cooperative banks.

He said licences of 96 cooperative banks had been cancelled during the last three years.

Chidambaram said cooperative banks were burdened with non-performing assets and therefore they were loading 2 per cent interest rate at the apex, district and primary levels while lending funds that were available to them at 5.25-5.75 per cent.

The government will carry out more liberalisation and financial and tax reforms to step up investments, Chidambaram said.

The Centre would also strive to improve financial management and fiscal consolidation in states so that investments in social sectors were not impeded, Chidambaram told visiting UK Secretary of State for International Development Hilary Benn here today.

The minister reaffirmed the United Progressive Alliance government's commitment to ensure that tangible benefits of development reach villages, an official release said.

Chidambaram drew attention to the irony of developing nations financing a large part of trade deficit of the US. He expressed concern over the impediments in world trade talks due to the reluctance of developed nations to provide greater market access to goods and services from developing nations apart from the resistance of rolling back farm subsidies.