Reserve bank proposes separate Board of Management for urban co-operative banks

The Reserve Bank has said that Urban cooperative banks must have a separate board of management set up by the board of directors to oversee daily business operations before being considered for conversion into commercial banks. In the draft guidelines it said this board should have well qualified members who do not have any business relation with the bank.

The Reserve Bank has suggested that in order to strengthen governance standards Urban cooperative banks should have a separate board of management (BoM)and have make a provision in their bye laws. According to RBI’s guidelines, regulatory approvals such as expansion of area of operation and opening of new branches may be allowed only for UCBs that have made such a provision in their bye law. The board of management may be appointed by the board of directors whose term end at the same time as the board of directors.

At least half the members of the board should have specialised qualification in finance, economics, law or IT, RBI said. Key responsibilities of BoM will include credit management, risk management and liquidity management. RBI shall 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 RBI. While board of directors would be responsible for the general direction and control of a UCB

The guidelines are part of the recommendations of a high powered committee headed by former deputy governor R Gandhi to examine the issues with regard to permissible business lines, appropriate size and conversion of Urban Co-operative Banks (UCBs) into commercial banks