Call to withdraw RBI directive on Urban Co-operative Banks

The direction requiring Urban Co-operative Banks (UCBs) to constitute a Board of Management (BoM) in addition to the existing Board of Directors (BoD) should be withdrawn by the Reserve Bank of India (RBI) in view of the government promulgating the Banking Regulation (Amendment) Ordinance, 2020, according to an industry body.

The National Federation of Urban Co-operative Banks and Credit Societies (NAFCUB) claimed that this regulatory requirement is impinging on the cooperative principles and also the provisions of the Constitution of India.

The RBI’s directive, issued on December 31, 2019, requires the BoD of UCBs with a deposit size of ₹100 crore and above to constitute a BoM within one year. This has been made a mandatory condition for opening of new branches / expansion of area of operation.

Constituting BOM under B.R. Act

Underscoring that while the ordinance has vested full control over the functioning of UCBs with the RBI, Jyotindra Mehta, President, NAFCUB, in a letter to RBI Governor Shaktikanta Das, alleged that the latter’s December-end 2019 circular, advising UCBs to constitute BOM in addition to BOD, continues to be in violation of the provisions of the Banking Regulation (BR) Act and the provisions of the State Cooperative Societies Act and the Multi-State Cooperative Societies Act, 2002.

The operational and functional problems in implementation of the RBI instructions and the issue of accountability of members of the BoM continues unabated, he added.

“The issue of guidelines for setting up of BoM in addition to BoD in UCBs is contrary to the extant provisions of the BR Act, 1949 as no specific powers have been vested with RBI in the Act…

“There are no provisions in the Act to constitute BoM in addition to BoD in UCBs. The provisions of State Cooperative Societies Act/Multi-State Co-op Societies Act also do not provide for establishment of BoM along with BoD,” Mehta said.

Hence, the NAFCUB President opined that the amendment in the bye- laws of UCBs for implementing the instructions issued by RBI is void ab initio (from the beginning).

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