BoM will improve governance in UCBs
The market share of cooperative banks in India before the Madhavpura bank scandal was 6.4% and now it is 3.4%, said N.S. Vishwanathan, deputy governor of the Reserve Bank of India. Vishwanathan advised these banks to adopt technology in an extensive manner in order to gain a firm foothold in the banking sector. He also said there is imminent need for them to have a professional approach.
Vishwanathan was addressing Sahakar Setu 2018 – a quadrennial conference of cooperative banks organized by the Gujarat Urban Cooperative Banks Federation recently.
‘’Banking business runs on the trust of customers. Hence, it is important to imbibe professionalism in the boards of UCBs. Banking functions can be professionally managed and monitored by the proposed Board of Management (BoM) setup and the BoM will be constituted by the board of directors. RBI wants to bring in professionalism in UCBs through the BoM,” Vishwanathan said.
The cooperative banking sector has been opposing the concept as they feel it is impractical and it would result in unnecessary duplications and delays in the functioning of UCBs. RBI had released draft guidelines on BOM for UCBs on 25 June 2018.
Vishwanathan emphasized that the purpose of BoM is to improve governance in the UCBs, which will enhance public confidence in the sector. “The BoM provides an institutional framework for professionalizing the governance structure which will manage the banking operations of the UCBs. As you are all aware, this is a suggestion made long ago and we have been looking at various ways to implement it. I am happy to mention that this proposal has emerged out of stakeholder consultations so that the need to bring legislative changes is obviated. I am sure you all appreciate that the proposed measure will enhance public confidence in the UCBs and help them regain their market share,” he told the cooperative bankers.
On the topic of an umbrella organization for cooperative banks, Vishwanathan said RBI is actively examining the recommendations submitted by the NAFCUB committee chaired by V.S. Das, former ED at RBI. Gujarat is the first state to initiate the umbrella organization under the name CBRDE, or Centre for Banking Research, Development and Excellence.
Vishwanathan further clarified that there is no compulsion for UCBs to convert into small finance banks. These banks can voluntarily decide on this and in doing so, they will have several benefits, including raising fresh capital from the market.