PMC scam effect! RBI asks large urban cooperative banks to constitute Board of Management

The Reserve Bank on Tuesday asked all urban cooperative banks (UCBs) with deposits of over Rs 100 crore to constitute a Board of Management (BoM) comprising experts to oversee their functioning. The decision assumes significance against the backdrop of a scam at Punjab and Maharashtra Cooperative Bank leading to hardships to over 9 lakh depositors. Under the present legal framework, the Board of Directors of a UCB perform both the executive and supervisory roles and has the responsibility to oversee the functioning of UCB as a co-operative society as well as its functions as a bank.

“Since UCBs are accepting public deposits, it is imperative that a separate mechanism be put in place to protect the interests of depositors,” the RBI said. As per the guidelines on BoM: “There shall be a Board of Management (BoM) in every UCB with deposit size of Rs 100 crore and above in addition to the Board of Directors”. The BoM will be constituted by the Board of Directors (BoD) of the UCBs concerned within one year, it added.

The BoM (excluding CEO) will have a minimum of five members and a maximum of 12. The CEO would be a non-voting member.
“The BoM shall exercise oversight over the banking-related functions of the UCBs, assist the BoD on formulation of the policy and any other related matters specifically delegated to it by the Board for proper functioning of the bank,” the RBI said.

As per the guidelines, RBI will have powers to remove any member of BoM and/ or the CEO if the person is found to be not meeting the criteria prescribed by it or acting in a manner detrimental to the interests of the bank or its depositors or both.
Following the exposure of scam in the PMC Bank, which had over 9.15 lakh depositors, the RBI imposed restrictions on withdrawals. Statutory inspection of PMC by the RBI had revealed large group exposure of about Rs 6,226.01 crore to Housing Development and Infrastructure Ltd (HDIL) Group companies. Of the total exposure to the HDIL group, only Rs 439.58 crore was disclosed to the RBI while Rs 5,786.43 crore remained undisclosed.

Meanwhile, the RBI has issued a comprehensive cyber security framework for UCBs. The framework for UCBs has been formulated based on a graded approach. They have been categorised into four levels based on their digital depth and interconnectedness to the payment systems landscape.