RBI tightens grip on cooperative banks with new rules for CEOs

The Reserve Bank of India (RBI), taking a tough stance on the governance of urban cooperative banks, announced a set of new rules for CEOs and whole-time directors. This comes in the wake of the collapse of several urban cooperative banks, with the most recent being the Punjab and Maharashtra Cooperative (PMC) bank.

The Central Bank got the power to regulate cooperative banks in June 2020 after the government issued an ordinance to bring 1,482 urban cooperative and 58 multi-state cooperatives under the RBI’s supervision.

As such, the RBI has asked all cooperative banks where the CEO has been appointed without its approval to review the fit and proper status of the existing MD in terms of present directions. RBI guidelines require that the MD should be a graduate and preferably have additional qualifications such as a diploma in banking, chartered cost account or Post Graduation in any discipline.

The minimum age for the CEO is 35 years and maximum at 70, with at least eight years’ experience in the middle or senior management level in the banking sector. The post of the MD and whole-time director cannot be held by the incumbent for more than 15 years. The RBI has extended the moratorium on PMC Bank by another six months.

Furthermore, in response to the expression of interest dated November 3, 2020, floated by the PMC Bank for its reconstruction, certain proposals were received. It has accepted the proposal from Centrum Financial Services (CFSL) along with Resilient Innovation (BharatPe) has been found to be prima facie feasible.

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Earlier this year, in February, the RBI had set up an expert (eight-member) committee on regulation of primary urban cooperative banks. The committee’s task was taking stock of the regulatory measures taken by the RBI and other authorities in respect of UCBs and assess their impact over the last five years to identify key constraints and enablers, if any, in fulfillment of their socio-economic objective.

The committee was also tasked to recommend effective measures for faster rehabilitation and resolution of UCBs and assess potential for consolidation of the sector.