"We are trying to bring this amendment to protect the depositors. As in some unfortunate situation in banks, depositors are put to hardship," the finance minister said in the Lok Sabha on Wednesday.

"The financial status of 277 urban cooperative banks is weak.105 cooperative banks are unable to meet the minimum regulatory capital requirement. 47 banks have net worth in negative," she further mentioned adding 328 urban cooperative banks have more than 15% gross NPA ratio.

With the amendments, RBI will be able undertake a scheme of amalgamation of a bank without placing it under moratorium. Prior to this amendment, if a lender was put under the moratorium, it not only capped the withdrawals by depositors, but also barred a bank’s lending operations.

Few more amendments have been proposed under section 45 of the act that will help the central bank to develop a scheme to ensure the interest of the public, banking system, account holders in the bank and banking company’s proper management, without disrupting any banking functionalities. However, the changes will not affect the existing powers of the state registrars of co-operative societies under state laws.

"For the last two years, depositors of cooperative banks and small banks are facing problems. We are trying to bring this amendment in order to protect the depositors. Because these banks have fallen into hard days requiring therefore the regulator to bring a moratorium and to solve the problem seems to consume all the time," the finance minister said.

The government on Monday introduced a bill in the Lok Sabha to amend the Banking Regulation Act. "During the budget session in March, we introduced this bill in order to have the amendments brought in so that depositors' interest will be taken care of. But unfortunately, during the budget session, we could not have this bill passed," Sitharaman added.

In June, the union cabinet on approved the ordinance to bring 1,482 urban and 58 multi-state cooperative banks under the supervision of the central bank. Sitharaman said the government had to go for an ordinance because the financial health of many of the cooperative societies, which are also performing as banks, "was becoming very delicate".

She said the bill will not apply to "a primary agricultural credit society or a co-operative society whose primary object and principal business is providing of long term finance for agricultural development if such society does not use as part of its name, or in connection with its business, the words 'bank', 'banker' or 'banking' and does not act as drawee of cheques."