RBI extends time-line for Urban Co-operative Banks by 6 months

RBI extends time-line for Urban Co-operative Banks by 6 months

The Reserve Bank of India (RBI) has extended the timeline for constitution of Board of Management (BoM) by Urban Co-operative Banks (UCBs) by six months till June 30, 2021.

As per RBI's guidelines on constitution of BoM, issued on December 31, 2019, since UCBs are accepting public deposits, it is imperative that a separate mechanism be put in place to protect the interests of depositors, the BoM shall comprise persons with special knowledge and practical experience in banking to facilitate professional management and focused attention to the banking related activities of the UCBs through appropriate amendments to their bye-laws.

However some bankers feel that there is no need for BoM.

Jyotindra M Mehta, Chairman, GUCBFL and President of the National Federation of UCBs & Credit Societies (NAFCUB), welcomed the move and observed that since the Banking Regulation Act has been amended, the RBI has been conferred with greater powers in dealing with co-operative banks as UCBs are under full control of RBI. According to him, the BoM requirement should be done away with.

He added that as almost 60% of Co-operative Banks are very small, they can't afford the two power centre structure (Board of Directors and BoM).

As per RBI guidelines, UCBs with deposit size of Rs. 100 crore and above shall constitute BoM which will also be a mandatory requirement for allowing such banks to expand their area of operation and open new branches. UCBs with a deposit size less than Rs. 100 crore and Salary Earners' Banks are exempted from constituting BoM.

Under the present legal framework, the Board of Directors 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.

The BoM shall exercise oversight over the banking-related functions of the UCBs, assist the board BoD on formulation of the policy and any other related matters specifically delegated to it by the Board for proper functioning of the bank.