In a letter to RBI Governor on the issue of RBI direction on appointment of MD and Whole Time Director in UCBs, Nafcub President Jyotindra Mehta has asked him to make the directions only to the appointments being made after the date of the circular.
Mehta has argued that all the present incumbent MDs be permitted to complete their tenures in conformity with their existing appointment orders and service rules.
“Such an arrangement will be least disruptive and also give time for the banks to plan and prepare for the changes to be made, and nothing will really be lost by this arrangement”, he submitted.
It bears recall that RBI had issued directions on 25th June 2021 to all urban cooperative banks on appointment of MDs/WTDs. These directions are issued by the RBI on the strength of amended Banking Regulations Act 1949.
Mehta concedes that while making most of the provisions applicable to UCBs, RBI has to keep in mind that directions/guidelines issued under these provisions are compatible with the democratic structure of the cooperative banks and their essential cooperative character.
“This was an assurance given by the Hon’ble Finance Minister in the Parliament during the discussion on the bill to amend the Banking Regulation Act 1949 when some Hon’ble members raised apprehensions that the provisions of bill would allow authorities to undermine cooperative character of cooperative banks”, Mehta reminded the Governor.
Mehta says it appears that RBI has failed to visualize the disruption it would cause in the sector. It has practically incorporated the same provisions that are prescribed for banks that have corporate structure, he stated.
‘Almost 90 per cent or more of the UCBs are very small sized entities in comparison to commercial banks that pose no major risk to the banking system. Their management structures are decades old. In some cases, over a century old. They will need time to change and to adopt things that are totally alien to them like concepts of “appointment” of directors, (as against elected) “CMD”, “WTD” and so on as they do not exist in cooperative lexicon”, Mehta says.
“Most of the banks have MDs who are employees and retire like other employees. (They are subject to trade union agreement or on contract basis) Some of the MDs are not taking any remuneration from the concerned UCBs and are virtually honorary MDs”, he underlines.
“Fixed tenure contractual appointments of MDs and WTDs are not common. Suddenly forcing the banks to implement all these concepts all at once would be highly disruptive and inviting chaos. It could lead to a situation where hundreds of banks will be needing to change their MDs within two months and it will be not easy for the banks to find suitable candidates”, he stated.
Stretching such an exercise over a period of time of say, 4 –5 years or more in stages will do no harm to the sector. While the requirements of 5 years contractual appointment and a maximum of 15 years continuous tenure consisting of renewal of the 5 years tenure twice is prescribed in the Act.
Mehta also asks the RBI to wait till a bunch of petitions on BR Amendment in various courts are disposed of.