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INDIA THIRD READING: INDIA


The Regional Rural Banks (Amendment) Bill, 2014


The Regional Rural Banks Act, 1976 provides for the incorporation, regulation and winding up of Regional Rural Banks with a view to developing the rural economy by providing credit and other facilities for the purpose of development of agriculture, trade, commerce, industry and other productive activities in the rural areas, particularly to the small and marginal farmers, agricultural labourers, artisans and small entrepreneurs. The said Act was amended from time to time and the last amendment was made in the year 2005. In view of growing business of the Regional Rural Banks and expansion of their role in both qualitative as well as quantitative terms in extending banking services in rural areas, a need was felt by the Government to amend the Regional Rural Banks Act, 1976 to strengthen their capital base and improve their overall capabilities. The Government accordingly brought forward the Regional Rural Banks (Amendment) Bill, 2014 to further amend the Regional Rural Banks Act, 1976.


Salient features of the Amending Bill: • In Section 3 of the Principal Act, amendment has been made to provide for the continuance of managerial and financial assistance from Sponsor Banks beyond the first five years of functioning of Regional Rural Banks.


• In Section 5 of the Principal Act, amendment has been made to provide for the enhancement of authorised capital of each Regional Rural Bank from five crore rupees to two thousand crore rupees divided into two hundred crore of fully paid-up shares of ten rupees each.


• In Section 6 of the Principal Act, amendment has been proposed to provide for the issued capital of each Regional Rural Bank to be not less than one crore rupees and shares in all cases to be fully paid-up shares of ten rupees each. In this amendment has also been proposed to make provisions for raising capital by Regional Rural Banks from sources other than the Central Government, the State Government and the Sponsor Bank subject to the conditions:- • That in no event the combined shareholding of the Central Government and the Sponsor Bank shall be less than fifty-one per cent; • The State Government concerned to be


consulted, if its shareholding is reduced below fifteen per cent; and


• The Central Government to raise or reduce shareholding of the Central Government, concerned State Government and the Sponsor Bank, by notification, with prior consultation with the concerned State Government.


• In Section 9 of Principal Act containing provisions regarding Board of Directors, following amendments have been proposed:


• to make provisions for (i) shareholders to elect directors in view of the proposed provisions for raising private capital by Regional Rural Banks from sources other than the Central Government, the State Government and the Sponsor Bank; (ii) a person not be a director on the Board of more than one Regional Rural Bank; (iii) appointment of an officer of the Central Government on the Board of Regional Rural Banks, if considered necessary. • to provide for the term of the Directors nominated by the Central Government on the Board of Directors of the Regional Rural Banks under clause (a) of sub-section (1) of section 9 to be fixed for a period not exceeding three years and eligibility for re-nomination, and the combined tenure of the Central Government nominated Director on the Board of one or more Regional Rural Bank, whether continuously or intermittently, not to exceed six years.


The Bill was passed by Lok Sabha on 22 December 2014 and by Rajya Sabha on 28 April 2015 with amendments. The amendments made by Rajya Sabha were agreed to by Lok Sabha on 5 May 2015. The Bill as passed by both Houses of Parliament was assented to by the President of India on 12 May 2015.


The Payment and Settlement Systems (Amendment) Bill, 2015


The Payment and Settlement Systems Act, 2007 was enacted for the regulation and supervision of payment systems in India and to designate the Reserve Bank of India as the authority for that purpose and for matters connected therewith. Subsequent to the enactment of this Act, the country had witnessed orderly growth of payment systems, and these payments systems are granted


authorisation on the principles of safety, security, soundness, efficiency and accessibility. After the global financial crisis in 2007-08, several developments took place, driven primarily by the G20, for reforming the Over the Counter derivatives markets. Some of these new initiatives included setting up of Trade Repositories and Legal Entity Identification System.


The Trade Repositories had emerged as a new type of Financial Market Infrastructure and are growing in importance, particularly in the Over the Counter derivatives market. However, there was no specific legal provision in any of the laws administered by the Reserve Bank of India to regulate and supervise the Trade Repositories in India. Therefore, compliance of the Trade Repositories with international norms needed to be ensured by the regulator through appropriate legal powers. In line with the G20 commitment and the global developments, the Reserve Bank of India had designated the Clearing Corporation of India Limited as a Trade Repository.


The global financial crisis in 2007-08 and the resultant difficulties experienced by banks and regulatory agencies to identify the complicated business ventures and to efficiently establish connections between issuers and securities brought forth the need for a standard uniform code to properly attribute Over the Counter derivatives activity to a party or group. Recognising the importance of a global identifier as a key component of necessary improvements in financial data systems, the G20 endorsed the development and maintenance of a global Legal Entity Identifier system. The Legal Entity Identifier is a 20-character unique identity code assigned to entities which are parties to a financial transaction and would be unique across the globe. There was, however, no legal provision under any of the laws administered by the Reserve Bank of India for regulation and oversight of the Legal Entity Identifier issuer. The Reserve Bank of India had selected the Clearing Corporation of India Limited to act as a Local Operating Unit for issuing globally compatible Legal Entity Identifier in India. The use of the Legal Entity Identifier numbers is likely to be mandated for Over the Counter derivative transactions and large borrowers in a phased manner.


Given the markets being served by the Clearing Corporation of India Limited, the participating banks run significant exposures against the said


The Parliamentarian | 2016: Issue One | 81


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