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:
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?
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.
The following annexures have been enclosed along with the communication of RBI.
1. Annex I FORM OF DEED OF COVENANTS WITH MD/WTD
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.
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