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To protect the interests of depositors and also overcome constraints imposed by dual regulation, the RBI has proposed the constitution of a board of management (BoM) in every urban cooperative bank (UCB) in addition to the board of directors (BoD).
In its ‘Draft guidelines on BoM for UCBs’, the RBI said the BoMs will be constituted by the BoDs. Existing UCBs having deposit size exceeding ₹100 crore will put in place a BoM within a year. Other banks have two years’ time.
Under the present legal framework, the BoD of an UCB performs both the executive and supervisory role, and isresponsible to oversee the functioning of the UCB as a cooperative society as well 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. According to the draft guidelines, it is proposed to implement a BoM consisting of members with special knowledge and practical experience in banking,” say the draft guidelines..
Broadly, BoM will carry out functions such as considering loan proposals as per the board-approved policy and making recommendations to the loan committee or BoD for sanction; recommending action for recovery of bad loans, one-time settlement or compromise settlement; management of funds and borrowings; implementing sound internal controls and systems and preparation/implementation of risk management policy; overseeing internal audit and inspection functions; and compliance functions.
The BoM will have a minimum of three members in UCBs having deposit size up to ₹100 crore, and five members in UCBs having deposit size above ₹100 crore. The maximum number of members in a BoM is 12.
UCBs having deposits above ₹100 crore will obtain prior approval of the RBI for appointment of CEO.
Dual regulation
To overcome constraints imposed by dual regulation (the State Registrar of Cooperative Societies also has oversight over UCBs), the RBI said it will have powers to remove any member of BoM and/or the CEO if the person is found to be not meeting the criteria prescribed by it or acting in a manner detrimental to the interests of the bank or its depositors or both.
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