Money & Banking

UCBs: RBI may nix norm to constitute Board of Management

K Ram Kumar Mumbai | Updated on August 08, 2021

Amendment to the Banking Regulation Act gives RBI full control over their functioning.

The Reserve Bank of India (RBI) may do away with the stipulation that requires Urban Co-operative Banks (UCBs) to constitute a Board of Management (BoM) as the September 2020 amendment to the Banking Regulation Act, 1949, gives the central bank full control over their functioning.

The lack of regulatory and supervisory powers, which the top officials of the RBI cited in the past as affecting the central bank’s ability to take prompt corrective action in case of irregularities in UCBs, has been addressed through the amendment to the BR Act.

Therefore, there is no need to create an organisational tier under the BoD, say co-operative banking experts.

Dual control

Before this amendment, UCBs were under the dual control of the RBI and respective State governments or Central government (in the case of multi-state cooperative banks), constraining timely regulatory action against weak banks.

To address the vexed issue of dual control, the central bank had, in December 2019, issued a circular, directing UCBs to constitute BoM, in addition to the Board of Directors.

As per this circular, the RBI has 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. Further, it can also supersede the BoM if its functioning is found unsatisfactory.

Functional problems

The National Federation of UCBs and Credit Societies (NAFCUB) had, in January 2020, flagged the operational and functional problems due to the BoM stipulation and also the issue of accountability of BoM members with RBI Governor Shaktikanta Das. In a letter to the Governor, the federation had also expressed concern regarding availability of a large number of members having special knowledge or practical experience in areas such as accountancy, agriculture and rural economy, banking, co-operation, finance, law, and IT, among others, for appointment as BoM.

The central bank’s December 2019 notification directs every UCB with deposit size of ₹100 crore and above to put in place a BoM. As of March-end 2020, of the 1,539 UCBs in the country, 663 fell under this category.

The BoM (excluding CEO) should have a minimum of five members, and the maximum number of members should not exceed 12.

So, UCBs with deposit size of ₹100 crore and above, will need to collectively appoint between 3,315 to 7,956 professionally qualified members, depending on the numbers they chose to appoint as per the regulatory criteria.

BoM will increase the administrative expenses for UCBs for sure as members have to be paid sitting fees. These banks are already paying sitting fees to members of BoD.

The federation has vehemently opposed the linkage of expansion of area of operation and opening new branches by UCBs to them constituting BoM.

Published on August 08, 2021

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