RBI Proposes Board of Management for UCBs

BE/RBI NOTE/22/2018

Urban Co-operative Banks form a major part of Indian Banking.  Reserve Bank of India has come out with a proposal, that Primary Urban Co-operative Banks (UCBs) should set up a Board of Management (BoM) in order to strengthen their Governance.  The RBI guidelines are:

1. The BoM should have a minimum of three members in UCBs having deposit up to Rs. 100 crore and five members in UCBs having deposit size above Rs. 100 crore.
2. The maximum number of members in BoM should not go beyond 12.
3. Guidelines also suggest that regulatory approvals like expansion of area of operation and new branches opening may be allowed only for UCBs which have provided the necessary suggested provisions in their bye laws.
4. Atleast 50 per cent of the member of BoM should be the persons with special knowledge or practical experience in respect of one or more of the following matters:
   1. Accountancy
   2. Agriculture and Rural Economy
   3. Banking
   4. Co-operation
   5. Economics
   6. Finance
   7. Law
   8. Small Scale Industry
   9. Information Technology
   10. Any other special matter useful for a UCB

5. BoM should be constituted from the elected members of the Board of Directors provided they meet the criteria specified therein. However not more than 50 per cent of the BoM should be from BoD.
6. The BoM should have a minimum of 2 members from outside the BoD.
7. Meetings may be held by BoM as may be deemed necessary. The Chairman to preside over the meetings of BoM shall be selected by the members of BoM amongst their group or by the BoD.
8. BoD is responsible for the general direction and control of a UCB. They shall continue to take care of all the administrative functions as mentioned in the respective Co-operative Societies Act.
9. BoD shall continue to be the apex body to set up policy setting body and constitute various committees of the board including the BoM to help the board in discharging their responsibility.

Background of the Issue

• The expert committee on licensing of new urban cooperative banks which was set up under the chairmanship of Y H Malegam in 2010 had recommended that a BoM should be constituted in every UCB in addition to the board of directors
• This was restated by high powered committee on Urban Cooperative Banks under the heading of R. Gandhi in 2015.
• Under the current set up, the board of directors of a UCB conducts both executive and supervisory functions and has the responsibility of overseeing the functioning of the UCB as a Co-operative society and also as a bank.
• In line with the discussions held with the stake holders and also to strengthen further the working of UCBs, RBI has suggested that bye-laws be amended to set up a BoM.