The Union Cabinet on Wednesday approved the amendments to Banking Regulation Act to strengthen cooperative banks and bring them under the Reserve Bank of India’s purview, PTI reported. At present, the multi-state cooperative banks operate under the regulatory preview of both the central bank and state cooperative societies.

The amendments were made after the central bank last year took charge of Punjab and Maharashtra Cooperative Bank – one of the country’s top five lenders with more than nine lakh depositors – and suspended the bank’s board after uncovering lending irregularities. As thousands of the bank’s customers were left in distress, questions were raised about the lack of regulatory supervision.

“The proposed law seeks to enforce banking regulation guidelines of the RBI in cooperative banks, while administrative issues will still be guided by Registrar of Cooperative,” said Union minister Prakash Javadekar. “Audit would be as per the RBI guidelines and the central bank can also supersede the board if any cooperative bank is under stress. Cooperative bank will be given time to comply with the RBI guidelines in phased manner.”

Javadekar said the changes would help strengthen financial stability. Cooperative banks would require the RBI’s permission to appoint a chief executive officer, just like private lenders, he added.

At present, there are 1,540 cooperative banks with 8.6 crore depositors. Their total savings amount to about Rs 5 lakh crore.

Last week, Finance Minister Nirmala Sitharaman had said in the Budget speech that the amendments had been proposed to increase professionalism, enable access to capital, and improve governance.