According to its new guidelines on educational qualifications and 'fit and proper' criteria for managing directors (MDs) and whole-time directors (WTDs) of primary urban cooperative banks, the Reserve Bank of India (RBI) has barred MPs (member of parliament) and MLAs (member of legislative assembly) from holding these posts. This is significant since most urban co-operative banks (UCBs) across India have MPs and MLAs holding such posts.
Apart from barring MPs, MLAs and representatives of municipal corporations and local bodies, persons engaged in business, trade or having substantial interest in any company too will be ineligible for appointment as MD or WTD of UCBs.
Since last year, new rules from the finance ministry granted RBI
with far greater powers to regulate and supervise UCBs. For years, RBI kept an uneasy distance from UCBs that are often controlled by powerful politicians and self-serving directors. These new guidelines on ‘fit and proper’ criteria for MDs and WTDs come after the central bank started taking tough stance e in the wake of the collapse of several cooperative banks.
While issuing the guidelines for appointment of MDs and WTDs, the RBI stated that MPs and MLAs and representatives of municipal corporations will not be eligible to hold such positions in the primary urban cooperative banks.
As per the guidelines, the MD or WTD will have to be a post graduate or have qualifications in finance discipline. He or she could be either chartered or cost accountant, MBA (finance) or have a diploma in banking or cooperative business management.
The UCBs shall ensure that the following ‘fit and proper’ criteria is fulfilled by the person being appointed as MD. The MD shall function under the overall general superintendence, direction, and control of the board of directors (BoD).
The person should not be below 35 years of age or more than 70 years, it added. However within the overall limit of 70 years, as part of their internal policy, individual banks are free to prescribe a lower retirement age.
"The person shall have a combined experience of at least eight years at the middle or senior management level in the banking sector, including the experience gained in the concerned UCB, or non-banking finance companies engaged in lending (loan companies) and asset financing," the RBI notification said.
With respect to the tenure of appointment, the RBI said the person can be appointed for a maximum of five years and can be eligible for re-appointment.
But it clarified that the MD or WTD cannot hold the post for more than 15 years. After that, the person, if necessary, may be re-appointed after a three-year cooling period.
"UCBs whose existing MD or chief executive (CEO) has completed a tenure of five years may approach RBI either to seek re-appointment of the incumbent, if he/she is eligible, or for appointment of a new MD or CEO, within a period of two months…," the notification said.
In case any UCB decides to terminate the services of MD or WTD before the expiry of tenure, it will have to seek prior approval of the RBI. The directions are applicable to all primary (urban) co-operative banks, the RBI said.
Cooperative banks in state have for long been considered to be fertile ground for political rehabilitation and those politicians who could not be accommodated in the ministry were placated with such plump posts.
In fact, the Madhya Pradesh government had even allowed the appointments of MPs and MLAs to the position of chairmen and vice-chairmen of the cooperative banks through an ordinance last year. The ordinance has since been turned into a law despite severe criticism. The Madhya Pradesh government is now said to be in a quandary after the new RBI guidelines were issued.
Banking experts point out that those cooperative banks are now mandated to follow the norms set by the RBI and there would be no other option for the Madhya Pradesh state government but to repeal the law which was promulgated as the Madhya Pradesh Cooperative Societies (Amendment) Ordinance 2020.
In February this year, the RBI had constituted an eight-member expert committee on primary UCBs to examine issues and suggest a road map for strengthening the sector. The committee is chaired by the former RBI deputy governor NS Vishwanathan.
The committee was to assess the regulatory measures taken by the RBI and other authorities in respect of UCBs and their impact over the last five years and then suggest effective measures for faster rehabilitation and resolution of UCBs and assess the potential for consolidation in the sector.