BoM will im­prove gov­er­nance in UCBs

Banking Frontiers - - News Cooperative -

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.

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