RBI issues draft guidelines on setting up board of management for cooperative banks

RBI issues draft guidelines on setting up board of management for cooperative banks

RBI says the board of management will be responsible for credit, risk and liquidity management of the urban cooperative bank

The Reserve Bank of India (RBI) has come out with draft guidelines on constituting a board of management (BoM) in addition to the board of directors, for urban cooperative banks (UCBs), with the aim of strengthening the governance in these banks.The BoM will be responsible for credit, risk and liquidity management of the bank, RBI said in a circular released on Monday.

“As 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 focused attention to banking related activities of UCBs,” said the circular.The move follows the recommendation of a 2010 expert committee, headed by Y.H. Malegam, on the licensing of UCBs.

In its June credit policy, the central bank had also announced that it would come out with a scheme to allow conversion of large UCBs into small finance banks to avoid risks to the system because of their size and complexity.

Under the current regulations, the board of directors of a UCB perform both the executive and supervisory roles and oversee the functioning of the UCB as a co-operative society and a bank. According to the draft guidelines, the BoM will report to the BoD, which will continue to oversee the general direction and control of a UCB. The BoM will be responsible for the day-to-day functions, including considering loan proposals, recovery of bad loans, borrowings and overseeing audit and inspection functions.

According to the draft guidelines, existing UCBs with deposit sizes exceeding Rs100 crore shall put in place the BoM within one year, while others banks may take two years.UCBs with deposit sizes up to Rs100 crore will have BoMs of a minimum of three members, while those with deposit sizes of more than Rs100 crore will have at least five members in the BoMs. The maximum number of members in the management shall not exceed 12, the circular said.The circular also said that at least 50% of the members of the BoM should have specialisation or practical experience in fields such as accountancy, agriculture, law.

The chief executive officer of the bank will be an ex-officio member of the BoD and BoM and he will be under the general superintendence, direction and control of the board.RBI shall have powers to supersede the BoM if the functioning of BoM is found unsatisfactory.The Reserve Bank of India (RBI) has come out with draft guidelines on constituting a board of management (BoM) in addition to the board of directors, for urban cooperative banks (UCBs), with the aim of strengthening the governance in these banks.The BoM will be responsible for credit, risk and liquidity management of the bank, RBI said in a circular released on Monday.

“As 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 focused attention to banking related activities of UCBs,” said the circular.The move follows the recommendation of a 2010 expert committee, headed by Y.H. Malegam, on the licensing of UCBs.

In its June credit policy, the central bank had also announced that it would come out with a scheme to allow conversion of large UCBs into small finance banks to avoid risks to the system because of their size and complexity.

Under the current regulations, the board of directors of a UCB perform both the executive and supervisory roles and oversee the functioning of the UCB as a co-operative society and a bank. According to the draft guidelines, the BoM will report to the BoD, which will continue to oversee the general direction and control of a UCB. The BoM will be responsible for the day-to-day functions, including considering loan proposals, recovery of bad loans, borrowings and overseeing audit and inspection functions.

According to the draft guidelines, existing UCBs with deposit sizes exceeding Rs100 crore shall put in place the BoM within one year, while others banks may take two years.UCBs with deposit sizes up to Rs100 crore will have BoMs of a minimum of three members, while those with deposit sizes of more than Rs100 crore will have at least five members in the BoMs. The maximum number of members in the management shall not exceed 12, the circular said.

The circular also said that at least 50% of the members of the BoM should have specialisation or practical experience in fields such as accountancy, agriculture, law.The chief executive officer of the bank will be an ex-officio member of the BoD and BoM and he will be under the general superintendence, direction and control of the board.RBI shall have powers to supersede the BoM if the functioning of BoM is found unsatisfactory.

The Mint, New Delhi, 26th June 2018