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The recent directions issued by RBI vide its communications dated June 25, 2021 settles the dust over the appointment of Managing Director (MD) / Whole-Time Director (WTD) in Primary (Urban) Co-operative Bank. Let me introduce you to their communication as under:

With plethora of mis handling in Co-operative sector, the eagerly awaited instructions from Reserve Bank of India are right stepping stone to set the tone at the top which would pave the way for better utilization of these banks. Let us understand the tone of RBI from its 27 pages dictum which will enlighten any one related to banking not excluding an average deposit holder in any part of the nation.

To whom are these directions applicable?

These directions are applicable to all Primary (Urban) Co-operative Banks (UCBs). However, in exercise of the powers conferred under the section 53A read with section 56 of the Act, a notification No. DoR.HGG.GOV.668/12.10.000/2020-21 dated March 23, 2021 was published in the Part III -Section 4 of the Gazette of India dated June 12, 2021 by the Reserve Bank of India exempting UCBs with a deposit size of less than ₹100 crore as per preceding year’s audited balance sheet.

Those who stand appointed with the approval of RBI earlier, by UCBs may continue as CEO till completion of his / her tenure or for a period of three years from the date of initial appointment, whichever is earlier.

The following instructions do serve the ethical purposes:

  • Other UCBs shall review the “Fit and Proper status” of existing MD in terms of RBI instructions and with the approval of its Board of Director and report to the concerned regional office of RBI and all UCBs shall obtain a deed of covenants in the format attached with RBI communication from present MD/WTD who is found to be complying with these directions.

Who can be appointed as a Managing Director / Whole-Time Director?

Page 2 contains clear explanation.

“Managing Director, who may also be designated as Chief Executive Officer or by any other name, is a person who is entrusted with the management of the whole, or substantially the whole of the affairs of a UCB, subject to the regulations or directions issued by the Reserve Bank from time to time. MD shall function under the overall general superintendence, direction and control of the Board of Directors (BOD).”

Any UCB can however, appoint a Whole-Time Director (WTD) to assist MD in consultation with BOD. This is obviously depending upon the size, operational matrix or practical considerations and needs to be approved by General Body of the bank.

Yes, it is very clear that MD/WTD fulfill the requirements of “fit and proper” criteria.

What are the eligibility criteria?

  • The person shall be a graduate, preferably, with (a) Qualification in banking/ co-operative banking such as CAIIB / Diploma in Banking and Finance / Diploma in Co-operative Business Management or equivalent qualification; or (b) Chartered / Cost Accountant / MBA (Finance); or (c) Post graduation in any discipline. (These educational qualifications do emphasize that the person concerned will be educated and certified from proper institutions.
  • I have an interesting anecdote about CAIIB. When I was a branch manager of a nationalized bank in 1977, CAIIB exams were postponed several times either due to release of test paper in advance or for any other unethical means by bankers themselves from Bombay and I sincerely wish that this practice is not allowed any more by the institute which awards CAIIB. Being an ex- banker with CAIIB qualifications, I wish my request is heard in right earnest.
  • What about the age? The person shall not be below the age of 35 years and above the age of 70 years at any time during his/ her term in office. However, within the overall limit of 70 years, as part of their internal policy, individual bank’s Boards are free to prescribe a lower retirement age.
  • Then what about experience? The person shall have a combined experience of at least eight years at the middle / 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.
  • Knowledge of regional language may be considered as an advantage. Or alternatively, he/she may be encouraged to learn the local language since most of the clients may speak only the same or will appreciate if local language is used to explain the banking transactions to them.

Now I am going to reproduce the most important instructions under propriety criteria, if regularly followed by the concerned authorities including the regulatory authorities, would save the institution called Primary (Urban) Co-operative Banks which were among many institutions which suffered due to improper selection of either MD, WTD, or Directors themselves.

Though very lengthy, as per the Indian traditions in regulatory or Government directions, if strictly followed without fear or favor, UCBs would nobly serve the customers and recent improper happenings in various states would not recur (Totally reproduced from text since no one is authorized to change the same)

“3.5.1 The person shall not (i) be engaged in any other business or vocation; (ii) be holding the position of a Member of Parliament or State Legislature or Municipal Corporation or Municipality or other local bodies; (iii) be a director of any company other than a company registered under section 8 of the Companies Act, 2013; (iv) be a partner of any firm which carries on any trade, business or industry; (v) have substantial interest in any company or firm as defined in Section 5(ne) read with section 56 of the Banking Regulations Act, 1949; (vi) be a Director, Manager, Managing Agent, partner or proprietor of any trading, commercial or industrial concern; (vii) be of unsound mind and stands so declared by a competent court; (viii) be an undischarged insolvent; (ix) be convicted by a criminal court of an offence involving moral turpitude; (x) be a director of any other co-operative bank or a co-operative credit society.

 3.5.2. The person shall submit a self-declaration on personal integrity as per Annex II.”

Tenure of MD/ WTD

The tenure of MD/ WTD shall not be for a period more than five years at a time subject to a minimum period of three years at the time of first appointment, unless terminated or removed earlier, and shall be eligible for re-appointment. The performance of MD/WTD shall be reviewed by the Board annually.

The only caveat added is that MD or WTD can’t hold the position for more than 15 years and a cooling period of 3 years is enshrined in the directions to avoid misuse of position by MD/WTD.

Procedure for obtaining approval from the Reserve Bank by the UCBs for appointment / re-appointment / termination of MD/ WTD and remuneration as per the instructions under page 5(5).

Nomination and Remuneration Committee (NRC)

Like the general instructions issued from time to time, UCBs shall constitute a “Nomination and Remuneration Committee (NRC)” consisting of three directors from amongst the Board of Directors (BOD) and nominate one among them as Chairman of the NRC. All three members of the NRC are required to be present in each meeting. In case of absence of any member nominated to the NRC, the BOD shall nominate any other director in his place to ensure the quorum. At the time of constituting the NRC, the BOD shall also decide its tenure.

NRC will follow all prescribed instructions regarding fit and proper criteria for MD/WTD. After obtaining necessary ‘Declaration and Undertaking’ as per Annex III from the shortlisted candidates. On completion of the process of due diligence, the NRC shall identify the persons from among the shortlisted candidates and recommend to the BOD for appointment as MD/ WTD.

The following laid down norms are routine in nature for recommending the name of MD/WTD.

  • NRC shall also recommend the remuneration which shall be payable to the MD/ WTD. While recommending the remuneration, the NRC shall ensure that the cost / income ratio of the bank supports the compensation package and it is consistent with the maintenance of a sound capital adequacy ratio. (Let us also be assured that payment of proper remuneration will enable the most appropriate candidate to work as MD/WTD without compromising on their character and allow the institution to prosper. Our earlier approach of paying very little salary to MD/WTD has not borne the required results)
  • In order to expedite the process of appointment, UCBs may submit a panel of at least two names in the order of preference for appointment of new MD/ WTD, to the Reserve Bank, four months before the expiry of the term of office of the present incumbent.
  • Non-Scheduled UCBs with a deposit size of ₹1000 crore and above as per preceding year’s audited balance sheet and all scheduled UCBs shall submit the proposal for appointment of MD/ WTD, along with the supporting documents listed in Annex IV, to the RBI, Department of Regulation, Central Office, Mumbai.
  • Non-Scheduled UCBs with a deposit size of ₹100 crore or above but below ₹1000 crore as per preceding year’s audited balance sheet shall approach the Regional Office/Central Office (in case of UCBs under jurisdiction of Mumbai office) of the Department of Supervision, Reserve Bank of India, under whose jurisdiction the Registered Office of the UCB is situated, for the requisite approval.
  • Termination of MD/ WTD by UCB In case a UCB decides to terminate the services of MD/ WTD before the expiry of tenure, it shall seek prior approval of the Reserve Bank, by submitting detailed reasons thereof along with the relevant documents and a Board resolution to that effect.

The following annexures have been enclosed along with the communication of RBI.


2. Annex II Self-declaration on personal integrity. (This speaks enormously about the integrity of MD/WTD which is the cornerstone of success of UCB. BOD should strictly observe the integrity of above officials and take necessary actions as and when necessary)

3. Annex III. Name of UCB: ___________________________________ ‘Declaration and Undertaking’ by a proposed MD/WTD’

4. Annex IV List of Documents.

5. Form – A. Application for approval of Reserve Bank of India for appointment / reappointment of Managing Director/ Whole-Time Directors (MD /WTD)


Primary (Urban) Co-operative Banks established earlier since independence did serve the local people who had directors or MD/WTD with impeccable character and desire to serve their own people from the same state from which they hailed. Due to introduction of politics or political interference at various levels, these institutions suffered monetarily and the local person who invested his hard- earned income suffered immensely. Though impressed by the due diligence shown by RBI in explaining various requirements to be selected as MD/WTD, one fervently hopes that integrity forms the basis of any appointment in banking whose economic fundamentals rest on poor man’s saving and blind faith in success of these institutions. As an ex-banker from a nationalized bank, I am sure with strict and meticulous governance standards at various levels, UCBs will live long and serve the common man.


Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author/TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

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