The announcement was made by Finance Minister P Chidambaram shortly before the House passed the Banking Regulation (Amendment) and Miscellaneous Provisions Bill, 2004 to replace an ordinance promulgated by the government on September 24.

This would enable licences granted to the existing multi-state cooperatives banks by the Reserve Bank of India to be validly granted.

Replying to the debate, Chidambaram said the government has sought comments from the RBI for the comprehensive bill, as he was "not at all happy at the state of cooperative banking in the country".

He also announced that the government was planning to double the target of agricultural credit in the next three years. 

The Finance Minister said the government had to bring the ordinance after the Supreme Court had held on October 29, 2004 that a state government did not have the power to notify a multi-state cooperative society as a cooperative bank and that RBI did not not have the power to grant a licence.

Under the bill, Chidambaram said RBI would be allowed to issue in future licences to cooperative societies registered under the Multi-State Cooperative Societies Act, 2002 to carry on the banking business.

He said the bill made provisions for supersession of Board of Directors of a multi-state cooperative bank in certain cases. Cutting across party lines, members welcomed the bill as after the court's judgement doubts had been expressed about the legality of the licences issued to other MSCBs.

Referring to cooperative banking, Chidambaram said this important arm of delivering credit to farmers had been "greatly affected". This bill, he said, was only an emergency provision to get over the objections raised by the judgement.