Source: PRS India & Live Mint
The Reserve Bank of India (RBI) issued guidelines on constituting a Board of Management (BoM) for Primary (Urban) Cooperative Banks (UCBs)
Need for Board of Management (BoM)
The board of directors (BoD) of a UCB performs both the executive and supervisory roles and has the responsibility to oversee the functioning of UCB as a cooperative 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
Key highlights about BoM
- According to the guidelines, UCBs, with deposits of ₹100 crores and more, will constitute the BoM, which will be a mandatory requirement for opening new branches.
- The BoM will be constituted by the BoD within a period of one year from the date of the circular, and have a minimum of five members and may have as many as 12 members.
- UCBs will have to make suitable amendments to their by-laws, with the approval of the general body and registrar of cooperative societies to provide for the constitution of BoM, in addition to the BoD.
- The proposal to create the BoM was first proposed by the expert committee on licensing of new urban cooperative banks, constituted under the chairmanship of Y.H. Malegam. The creation of a BoM, in addition to the BoD, was aimed at addressing the issues arising out of dual-control, and to bring about an improvement in the functioning of UCBs. Subsequently, the high-powered committee, set up by the RBI under the chairmanship of R. Gandhi, made it mandatory for UCBs to set up a BoM.
- The BoM will report to the Board of Directors of the bank.
- The BoM will comprise expert banking professionals.
- The chairman of the BoM may be elected by the members from among themselves, or appointed by the BoD
- The BoM will have a minimum of five and a maximum of 12 members, with special knowledge or expertise in various fields, including accountancy, banking or law.
Functions of BoM:
- It will exercise oversight on banking-related functions of the UCBs, assist the BoD on the formulation of policies and any other related matter, specifically delegated to it by the board for the proper functioning of the bank.
- The BoM will also oversee the management of funds and borrowings, and recommend action for recovery of non-performing assets (NPAs).
- Its functions will also include exercising oversight over the banking-related functions of UCBs and assisting the Board of Directors in policy formulation.
The BoD 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.