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The Reserve Bank of India (RBI) has extended the timeline for constitution of Board of Management (BoM) by Urban Co-operative Banks (UCBs) by six months till June 30, 2021.
The central bank has conveyed the extension in the timeline to state UCB Federations, including the Gujarat Urban Co-operative Banks Federation Ltd (GUCBFL).
While welcoming the breather for UCBs, Jyotindra M Mehta, Chairman, GUCBFL, observed that since the Banking Regulation Act has been amended, conferring greater powers on the Reserve Bank of India (RBI) in dealing with cooperative banks, the BoM requirement should be done away with.
“Now we (UCBs) are under full control of RBI. So, where is the need for BoM? Almost 60 per cent of our Banks are very small. They can’t afford the two power centre structure (Board of Directors and BoM),” Mehta, who is also President of the National Federation of UCBs & Credit Societies (NAFCUB), said.
As per RBI’s guidelines on constitution of BoM, issued on December 31, 2019, the BoM shall comprise persons with special knowledge and practical experience in banking to facilitate professional management and focused attention to the banking related activities of the UCBs through appropriate amendments to their bye-laws.
“UCBs with deposit size of ₹100 crore and above shall constitute BoM which will also be a mandatory requirement for allowing such banks to expand their area of operation and open new branches,” the guidelines said.
UCBs with a deposit size less than ₹100 crore and Salary Earners’ Banks are exempted from constituting BoM.
Under the present legal framework, the Board of Directors 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. Accordingly, it is proposed to implement a Board of Management consisting of members with special knowledge and practical experience in banking to facilitate professional management and focussed attention to banking related activities of UCBs,” the RBI said.
The BoM shall exercise oversight over the banking-related functions of the UCBs, assist the board BoD on formulation of the policy and any other related matters specifically delegated to it by the Board for proper functioning of the bank.
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