RBI says UCBs with deposits of over Rs 100 cr should be run professionally

The Reserve Bank of India (RBI) on Tuesday said urban cooperative banks (UCB) with deposit size of Rs 100 crore and above should have a professionally run board of management, and CEO appointments would be subject to the RBI’s nod. 

“The BoM (board of management) shall comprise persons with special knowledge and practical experience in banking, to facilitate professional management and focused attention to banking-related activities of the UCBs through appropriate amendments to their bye-laws, in accordance with the enclosed guidelines following the due process,” the RBI said. 

It added that the board of directors of UCBs should also carry out a process of due diligence to determine the suitability of the person for appointment as the member of the management. This should be “based on qualification, expertise, track record, integrity and other ‘fit and proper’ criteria”.

This brings UCB regulations in line with other scheduled commercial banks, for whom the ‘fit and proper’ criterion is applied. The RBI had said such criterion would apply for UCBs too, and having a board of management would be mandatory “for allowing such banks to expand their area of operation and open new branches”.

These UCBs must obtain prior approval of the RBI for appointing the CEO. 

“In this connection, it is advised that scheduled UCBs shall approach the Department of Regulation of Reserve Bank for approval, at least three months prior to the end of tenure of the incumbent CEO,” the RBI said.

The UCBs should also submit annual returns furnishing details of the members of the BoM, as of December 31 each year. UCBs with deposit size of less than Rs 100 crore may continue with their usual practice, but “for having good governance practices, such banks may also constitute BoM, if they so desire,” the central bank added.

The RBI has been tightening norms for UCBs after the recent scam in Punjab and Maharashtra Cooperative Bank (PMC). 

On Monday, the RBI had released draft guidelines that mandated UCBs to lend 75 per cent of their loans to the priority sector, ensure they have half their loans of ticket size below Rs 25 lakh, and increase the single and group borrower exposure to a maximum of 10 per cent and 25 per cent of the core capital, respectively.