Delhi Urban Cooperative Bank Federation has slammed Malegam Committee report in no uncertain words. In a communication sent to Indian Cooperative.com, Federation has raised many points demolishing the recommendations of Malegam Committee.
For want of space we would presently focus on the three tire of control suggested by the Malegam Committee and resisted by Delhi UCB Federation.
The communication which is in the form of a letter to the Reserve Bank of India, says that the essence of the cooperative character of a UCB is that there is a close identity between the owners and the customers.
The sole objective of any UCB is not profit maximization as it the case with commercial banks. While recommending the constitution of board of Management, the Committee has ignored the aforesaid most salient feature of the cooperative character.
In fact, on constitution of a Board of Management, it shall create a super structure leading to great divide between the Board of Directors and the customers of a UCB.
The proposed recommendation of the committee for constitution of Board of Management, by the board of Directors, shall be inconsistent with the Model Bye Laws of UCBs, which were framed and recommended for adoption by the RBI and RCS, it says.
Readers may be aware that Laxmi Das of Kangra Bank is the Chairman of DUCBF while Vijay Mohan of Janata Cooperative Bank is its general secretary. Other office-bearers include Moti Lal Bansal of Citizen Coop Bank, Ajit Singh Sehra of Ramgarhia Co-op bank, Narendra Kumar Goyal of Indraprastha Sahkari Bank, Jai Bhagwan of Delhi Nagrik Sahkari Bank, Beg of Jamia Co-op bank, Arun Kr Jain of Vaish Co-op Adarsh Bank, V K Deewan of National Co-op bank, K K Mehra of Kharti co-op bank and others.
In a hard-hitting letter, the communication says that as per the cooperative character, coupled with Act and Rules, the Board of Directors is elected through elections for a specific term. Therefore, an inevitable question arises – whether or not the term of Board of Management shall also be equivalent to the term of Board of Directors.
If yes, then what will be the fate of the CEO, so appointed by the Board of Management? Further, the need of RBI’s approval as to the appointment of CEO also does not hold good. The RBI, at the most, may prescribe certain qualifications for the CEO, but prerogative for his appointment shall rest with the Board of Directors only.
It is pertinent to note here that once the newly elected Board of Directors take charge, they may do away with the existing Board of Management and appoint another one. Even otherwise, going by the recommendation made under para 5.11 (b) that “Members of Board of Directors the Board of Management will automatically get, truncated or abolished.
Accordingly, in such a situation the Board of Management would again be required to be constituted and may eventually lead to appointment of another CEO and this process may get repeated time and again leading to mismanagement, non-governance and destabilizing of the Management.
We apprehend that emergence of such a scenario will lead to conflict of interests, unnecessary litigation and eventually causing inordinate delays in taking appropriate decisions with regard to the working of the Bank.
Further, as per the recommendations, all operations of the Bank shall be managed by the Board of management. Again a question arises, since the Board of Directors are elected by the Members of the Bank, as per its Bye-Laws, how far they shall be accountable to the members, for the discrepancies committed by the Board of Management cannot be answerable to Members who elect the Board of Directors and not the Board of Management.
As per Chapter 4, the committee appears to have drawn the conclusion that the system of ‘Dual Control’ is responsible for most of the problems or ills ailing the UCBs and solution lies in segregation of the ownership and by putting in place a system of Board of Management.
As per Para 4.6(a) the RCS would continue to exercise control and regulation of the UCB as a cooperative society and RBI would control and regulate on its function as a bank.
It is a fact, well known to everyone that even in the present setup same system is being followed. The functioning of any UCB, as a bank, is regulated by the RBI only and the Board of the Directors strictly runs a bank by adhering to the guidelines of RBI issued from time to time.
Needless to mention here that being a ‘Banking entity’ the UCBs are subject to stricter controls and regular inspections by the Reserve Bank of India.
Moreover, it is mandatory to have minimum two professional directors on the Board of the Bank, then, how the proposed setup consisting of Board of Management will be different; rather, setting up an additional tier of Board of Management will result in triple control creating further confusion.
The communications run into many more pages which would be put before public scrutiny later.