Question
A new organizational structure ‘Board of Management’ was proposed for the Urban Cooperative Banks by which committee?
Answer: Option C
Answer: (c)
In normal companies/banks, the Board of Directors (BoD) are independent and representatives of shareholders/owners, but not exactly the shareholders. But in cooperative banks, the Board of Directors are elected from among the shareholders themselves. Because of this, professionalism is missing from the cooperative banks and there were several cases of fraud discovered.
To bring improvement in the governance and functioning of Urban-Cooperative Banks (UCBs), a new organization structure consisting of a Board of Management (BoM), in addition to the Board of Directors (BoD), was suggested by the Malegam Committee (2011). (As changing the selection/appointment process of BoD required changes in Cooperative Societies Act)
Accordingly, RBI published guidelines on 31st Dec 2019, as per which, the BoD of UCBs with deposit size of Rs. 100 crore and above, shall constitute BoM. It shall be mandatory for such banks to constitute BoM for seeking approval to expand their area of operation and/or open new branches.
These UCBs will also require prior approval of RBI for the appointment of their CEOs. UCBs with a deposit size less than Rs. 100 crores are exempted from constituting BoM although they are encouraged to do so voluntarily.
The BoM shall report to the BoD and shall exercise oversight over the banking-related functions of the UCBs, assist the BoD on the formulation of policies and any other related matter specifically delegated to it by the BoD for the proper functioning of the bank.
The BoD will continue to be the apex policy setting body and shall continue to be responsible for the general direction and control of a UCB. It will continue to look after all the administrative functions as spelt out in the respective Co-operative Societies Acts.
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Answer: (c)
In normal companies/banks, the Board of Directors (BoD) are independent and representatives of shareholders/owners, but not exactly the shareholders. But in cooperative banks, the Board of Directors are elected from among the shareholders themselves. Because of this, professionalism is missing from the cooperative banks and there were several cases of fraud discovered.
To bring improvement in the governance and functioning of Urban-Cooperative Banks (UCBs), a new organization structure consisting of a Board of Management (BoM), in addition to the Board of Directors (BoD), was suggested by the Malegam Committee (2011). (As changing the selection/appointment process of BoD required changes in Cooperative Societies Act)
Accordingly, RBI published guidelines on 31st Dec 2019, as per which, the BoD of UCBs with deposit size of Rs. 100 crore and above, shall constitute BoM. It shall be mandatory for such banks to constitute BoM for seeking approval to expand their area of operation and/or open new branches.
These UCBs will also require prior approval of RBI for the appointment of their CEOs. UCBs with a deposit size less than Rs. 100 crores are exempted from constituting BoM although they are encouraged to do so voluntarily.
The BoM shall report to the BoD and shall exercise oversight over the banking-related functions of the UCBs, assist the BoD on the formulation of policies and any other related matter specifically delegated to it by the BoD for the proper functioning of the bank.
The BoD will continue to be the apex policy setting body and shall continue to be responsible for the general direction and control of a UCB. It will continue to look after all the administrative functions as spelt out in the respective Co-operative Societies Acts.
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