RBI's tough prescription for UCBs - 6 perspectives
Banking Frontiers|July 2021
Veteran cooperative bankers Satish Marathe, Pramod Karnad, Suryakant Patil, Vijay Mohan, Atul Khirwadkar, and Jayvadan Bodawala analyze the recent RBI guidelines relating to the appointment of MD/CEO, WTD, and CRO:
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Satish Marathe firmly believes that this process would enhance credibility and inspire confidence among the depositors

The Reserve Bank of India has recently framed new guidelines on the appointment of managing director / whole-time director for urban cooperative banks. It has said the managing director of a UCB shall function under the overall general superintendence, direction and control of the Board of Directors of the bank. The UCBs shall ensure that the MD/ Whole-Time Director shall be a graduate, preferably with qualification in banking / cooperative banking such as CAIIB / diploma in banking and finance/diploma in cooperative business management or equivalent qualification, or Chartered / Cost Accountant / MBA (Finance), or post-graduation in any discipline. A circular issued by the central bank in this regard specifically state that, the MD/ CEO shall not be holding the position of a member of Parliament or state legislature or municipal corporation or municipality or other local bodies.

RBI has also decided that all UCBs having asset size of ₹50 billion or above, shall appoint a Chief Risk Officer (CRO) by 31 March 2022 and set up a Risk Management Committee of the Board. The Board must clearly define the CRO’s role and responsibilities and ensure that he/she functions independently. The CRO shall have adequate professional qualification/experience in the area of risk management. In case the CRO reports to the MD/CEO, the Board or the RMC shall meet the CRO, without the presence of the MD & CEO, at least on a quarterly basis. Further, there shall not be any ‘dual hatting’ for CRO. RBI has also laid a number of other specifications in a couple of latest circulars to the UCBs.

In initiating these steps, the RBI feels it will help to professionalize operations and improve governance in urban cooperative banks.

We sought views of 6 leading cooperative bankers on these reform measures.

A welcome and timely step

Satish Marathe, Founder Member, Sahakar Bharati, and Director, Central Board, RBI:

The guidelines with regard to the appointment of MD / CEO and whole-time director are welcome and timely. Running a bank, including an UCB, is more complex and challenging than it was a few years back. Prescribing norms for appointment of MD/CEO and whole-time director will go a long way in professionalizing operations besides improving governance.

If one views the current scenario dispassionately, one will agree that the UCB sector needs executives who are qualified, experienced and who have enough exposure. While there may be some hiccups initially, in the long run this process would enhance credibility and inspire confidence among the general public, particularly, depositors.

Since, the appointment is being confirmed by the RBI, to an extent the MD/CEO would be independent and will have relatively more operational space. The provision for appointment of wholetime director (read executive director) though new in the UCB sector, will greatly facilitate succession planning in the concerned banks.

MDs/CEOs, who will have to demit office, and who will fit the norms, can be appointed as an Advisor to the Board or Officer on Special Duty for discharge of specific functions. To avoid, heart burning, such an appointee may directly report to the Chairman. All UCBs, particularly, large and medium-sized, need to put in place risk management systems, processes and appoint dedicated, qualified and experienced officers as a part of risk mitigation. Appointment of CRO, is a first step in this direction. Role and functioning have been well laid down in the RBI circular. Though today it has been made applicable to UCBs with asset base of ₹50 billion, all scheduled and medium-sized UCBs should initiate steps to emulate and implement the guidelines for strengthening the UCB sector.

Pramod Karnad asks how long will the RBI wait in problem cases as it is expected to be protecting the interests of depositors

Being non-political should be the eligibility for Director/ Chairman

Pramod Karnad, Administrator, Beed DCCB, Maharashtra and Former Managing Director, Maharashtra State Cooperative Bank:

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