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

As UCBs are accepting public deposits, it is imperative that a separate mechanism is put in place to protect the interests of depositors.

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.

It will consist of members with special knowledge and practical experience in banking to facilitate professional management and focused attention on banking-related activities of UCBs.

The circular also said that at least 50% of the members of the BoM should have a specialization 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.

The BoM will be responsible for credit, risk and liquidity management of the bank. It will be responsible for the day-to-day functions, including considering loan proposals, recovery of bad loans, borrowings and overseeing audit and inspection functions.

The BoM will report to the BoD, which will continue to oversee the general direction and control of a UCB. RBI shall have powers to supersede the BoM if the functioning of BoM is found unsatisfactory.

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