The Reserve Bank of India (RBI) logo is displayed outside of the bank’s headquarters in Mumbai, India. (Photographer: Kainaz Amaria/Bloomberg)

RBI Proposes Board Of Management In Urban Cooperative Banks

The Reserve Bank of India today proposed that all Urban Co-operative Banks (UCBs) having deposits of over Rs 100 crore will have to set up a board of management within one year to promote professional management in the banks.

The management board will be in addition to the board of directors, RBI said in its draft guidelines for which it has invited public comments till July 24. An expert committee on the licensing of new UCBs set up under the chairmanship of Y H Malegam in 2010 had recommended this and was reiterated by the High Powered Committee on UCBs led by former RBI deputy governor R Gandhi.

After considering the feedback of the stakeholders, it has been decided to implement the suggestion of the Malegam Committee on putting in place a board of management in addition to a board of directors in UCBs, the RBI said.

Currently, the BoD of a UCB perform both the executive and supervisory roles and has the responsibility to oversee the functioning of UCB as a co-operative society as well as its functions as a bank.

Since UCBs are accepting public deposits, it is imperative that a separate mechanism be put in place to protect the interests of depositors, the RBI said. It proposed that the board of management will consist of members with special knowledge and practical experience in banking.

Other banks, who do not have deposits over Rs 100 crore will have two years to establish a board of management.

The proposed board will have a minimum of three members in UCBs having deposit size up to Rs 100 crore and five members in UCBs having deposit size above Rs 100 crore. The maximum number of members should not exceed 12.

The board of directors will continue to be the apex policy setting body and constitute various committees of the Board. It will delegate powers to the various committees as considered appropriate.

On the functions of the board of management, the draft said it will consider loan proposals, recommend action for recovery of bad loans, implement sound internal controls and oversee compliances, among others. The draft also proposes “Fit and Proper” criteria for selection of Chief Executive Officers or Managing Directors of UCBs.

Any person who has had a business relationship with the bank, in question, during the immediate preceding three years will not be eligible for appointment as members of the proposed boards. Further, constitution of the board will be a mandatory condition for obtaining regulatory approval for expansion of area of operation and opening of new branches by existing UCBs.