The Hindu : Plan to bar MPs, MLAs from becoming bank directors

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Thursday, Jul 24, 2003

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Plan to bar MPs, MLAs from becoming bank directors

By Alok Mukherjee

NEW DELHI JULY 23. In a significant move, the Union Government is planning to bar Members of Parliament and State legislatures as well as stockbrokers from becoming directors on the boards of commercial and cooperative banks.

Besides, the powers of the Reserve Bank of India (RBI) are to be extended so that its control over cooperative banks would be similar to the control it exercises over commercial banks.

These decisions follow a review of the Banking Regulation Act, 1949 under which cooperative banks currently function under a dual control. While their banking operations come under the Banking Regulation Act, management of cooperatives falls under the purview of the State Governments. Consequently, the RBI cannot order "winding up" of errant cooperative banks or impose penalties on them.

Hence, the Government proposes to apply a principal part of the Banking Regulation Act on cooperative banks and also amend the Act to redefine certain technical terms such as "approved securities," "substantial interest," "small scale industrial concern," and "banking." The list of business which a bank may undertake is proposed to be enlarged to include several new activities like leasing, hire-purchase, factoring, credit cards, derivatives, etc. An amendment is also proposed to enable banks to set up joint ventures and to acquire or promote companies for taking up specified business activities.

Also on the amendment list is the provision for appointment of directors. At present, a director of a banking company cannot be on the board of another banking company. This restriction is to be extended to cooperative banks as well. Besides, the Government proposes to debar members of Parliament and State legislatures and stockbrokers to be on the board of banking companies and banking cooperative societies.

The Government also proposes to revise the penalties which can be imposed by the RBI under various sections of the Banking Regulation Act.

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