The draft proposals by RBI call for the formation of Board of Management, in addition to the existing Board of Directors, in a bid to separate executive and supervisory functions
Recent proposals by the national banking watchdog, Reserve Bank of India, to increase its regulatory powers over the Urban Cooperative Banks (UCB) will be at the cost of "cooperative spirit" and "violate the Cooperatives Act", suggest local bankers. While the new regulations envisage putting UCBs almost at par with Public Sector Banks (PSBs), bankers are of the opinion that it is uncalled for, as UCBs have far lower bad loans than the PSBs.
The draft proposals by RBI call for the formation of Board of Management (BoM), in addition to the existing Board of Directors (BoD), in a bid to separate executive and supervisory functions. However, as the BOM is accountable directly to RBI, players say it creates a conflict of power.
"BOD is answerable to the general body, which is supreme. So unless BoM is answerable to BoD, there would be a conflict in management," said a senior source in one of the leading UCB in the state.
"The provision that BoM shall be responsible to BoD is consistent with the spirit of cooperative banks but RBI's powers over BoM and CEO should be suitably modified to say that it would be mandatory for BoD to follow directions for removal from RBI, instead of providing for RBI to directly remove them," said Jyotindra Mehta, chairman of Gujarat Urban Cooperative Banks Federation.
Another source in the cooperative banking sector said that the proposals which are put for consultations, are aimed at increasing the regulatory authority of RBI over UCBs. However, bad loans measured in terms of Non Performing Assets (NPA) of PSBs are at about 11.8%, while that of UCBs is 6.4%.
LOW RISK LOANS
By the very nature of operations, as they cater to the lower rung of the pyramid, UCBs don’t have high NPAs. The ticket size of over 90 per cent loans by UCBs is less than Rs 5 lakh
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