One of the controversial points in the recently released draft guidelines on constituting Boards of Management (BoM) for UCBs by the RBI happens to be its abrogation of right to remove any member of BoM and/ or the CEO if the person is found to be not meeting the criteria prescribed by RBI.
Several cooperators are opposed to this blatant attempt by the RBI to entering cooperative turf and issuing diktat, inimical to the Multi State Cooperative Act which was passed by no less a body than the Parliament of India itself in 2002.
Reacting to the issue Jyotindra Mehta, President of Sahakar Bharati said “General Body of cooperative is supreme and only it has a right to remove or appoint a person. How can RBI abrogate this power?” he asked pointedly.
This discussion of having Board of Management working under Board of Directors has been going on for 3-4 years but the single most point standing as a roadblock to this provision is the presence of a large number of unit Banks (Banks with a single branch) in the urban cooperative sector, said Mehta.
“With majority of UCBs (about 50%) being unit banks and with some of them being as old as 100 years they have trouble affording professionals. Then there is also the issue of not getting the trained hands for remote areas”, Mehta underlined.
According to RBI, at least half the members of the boards should have specialized qualifications in finance, economics, law or IT. Key responsibilities of BoM will include credit management, risk management and liquidity management.
The guidelines propose that UCBs should constitute a BoM, in addition to the Board of Directors (BoD) and the terms of the two may end simultaneously.
Taking a dig at RBI, Mehta reminded it of the perils of having too many professionals on the Board who have little commitment as members unlike cooperative leaders. “See the working of PSU banks whose boards are dominated by professionals, they are all reeling under NPAs and gross mismanagement with the govt attempting to resuscitate them through recapitalizing.
Explaining Mehta further asks when RBI already has a provision of having professionals on the Board of urban cooperative banks- one CA and one financial expert–what was the need for this new idea. He also referred to TAFCUB in this context and felt a need to streamline it further.
Referring to the same Malegam Committee Report which has formed the basis of this new RBI diktat, Mehta said “read the report carefully and you would find that out of the total advances of UCBs, more than 90 percent are less than Rs 5 lakh. And this is said not by us but by the Report”, he underlined.
Several cooperators Indian Cooperative talked to felt that the excessive curb and control being exercised by RBI these days on urban cooperative banks is due to the nervousness that gripped the regulator post Madhavpura episode. Everybody wonders what RBI was doing when the scam was in the making, exactly the way Nirav Modi-PNB episode has put a question mark on its ability to smell a rat in the PSU banking operations.