UCB directors must probe management to boost governance: RBI's Swaminathan

RBI advises UCB directors to ask tough questions to senior management to ensure ethical, transparent, and prudent operations, aiming to prevent distress in the banks

The Reserve Bank of India (RBI) has advised directors on the boards of Urban Cooperative Banks (UCBs) to ask tough questions to senior management to ensure that the banks are run in a prudent, ethical, and transparent manner, thereby preventing distress.

 

Swaminathan J, Deputy Governor of the RBI, in his address to a seminar of UCB board members, emphasised the need to enhance governance and accountability. "Time and again, supervisory experience has shown that the root cause of distress in cooperative banks is not external shocks but weak internal governance," said Swaminathan. The RBI released his speech, delivered on 11 July 2025, at a seminar held at the College of Agricultural Banking, Pune.

   

He noted that whether it is high levels of non-performing assets, instances of fraud, or erosion of capital, these issues often trace back to poor oversight, lack of independent judgment, and inadequate checks and balances at the board level.

 

The directors are not expected to manage the day-to-day operations, as that is the responsibility of senior management. However, Swaminathan stressed that the director’s role is not merely to endorse decisions but to actively engage and ask the difficult questions. 

 

He observed that directors play a crucial role in building robust assurance functions—risk management, internal audit, and compliance. "These are not back-office support roles. They are your eyes and ears within the organisation," he said.

 

Directors must engage actively with these functions—not just to review their reports, but to understand what is happening at the ground level. Ask questions, seek clarifications, and ensure that red flags are not ignored or rationalised, Swaminathan added.

 

In addition to strong engagement with assurance functions, directors must also engage with statutory auditors and supervisory teams. These stakeholders are not adversaries—they are valuable partners in safeguarding the health of the institution. Their reports should be studied carefully, discussed thoroughly at the board level, and acted upon in a time-bound manner.

 

Swaminathan also cautioned against the temptation to look for comfort in favourable metrics alone. Instead, he urged directors to focus on understanding the root causes of weaknesses and, most importantly, in fixing them decisively.