RBI proposes Board of Management in Urban Co-operative banks

•  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.
• An expert committee on licensing of new Urban Cooperative Banks (2010) set up under the chairmanship of Y H Malegam had recommended, inter alia, that a BoM in every UCB, in addition to the BoD(Board of Director), which was reiterated by the High Powered Committee on Urban Cooperative Banks (Chairman R Gandhi) constituted in January 2015.

Important Highlights:

• 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.
• BoM will be in addition to the Board of Directors (BoD).
• 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. BoM consisting of members with special knowledge and practical experience in banking to facilitate professional management and focussed attention to banking related activities of UCBs.
• There shall be a BoM in every UCB in addition to the Board of Directors. BoM shall be constituted by the Board of Directors (BoD). Existing UCBs having deposit size exceeding Rs 100 crore shall put in place the BoM within a period of one year. Other banks may constitute the BoM within a period of two years.
• The proposed BoM 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 in BoM should not exceed 12.
• BoD, however, will continue to be the apex policy setting body and constitute various committees of the Board, including the BoM to assist the Board in carrying out its responsibilities.
• It will delegate powers to the various committees as considered appropriate.

By: Vishal