Umbrella body for UCBs mooted

PSBs should look at tapping capital markets for funds

Suggestion to create pool of independent directors

MUMBAI: The Reserve Bank of India (RB) Governor has called for the institution of an Umbrella Organisation for urban cooperative banks (UCBs) that can extend loans and refinance facilities, set up IT infrastructure and provide support for capital and liquidity.

The RBI Governor, Shaktikanta Das, while delivering a speech on ‘Indian Banking Sector: Current Status and the Way Forward’, recently in Pune, also suggested that the board of directors of  UCBs require greater expertise and skill to conduct banking business professionally.

Talking on the capital infusion exercises followed by the public sector banks (PSBs) in the country that controls close to 70 per cent of the banking in the country, the RBI said PSBs should start exploring the possibility of raising funds through capital markets for their capital requirements instead of overly depending on the Government.

He also suggested instituting a pool of independent directors across various areas of expertise so that the PSBs can draw directors from that pool when the need arises – which will help improve the quality of the boards.

Elaborating on the Umbrella body for UCBs, Das said, “The Reserve Bank is in the process of issuing guidelines on this issue.” He further said that the structure, functions and the regulatory guidelines of this organisation are being examined by the Reserve Bank.

Stating that mergers and consolidation in the UCB sector will also help in reducing operating costs, encouraging greater risk diversification and economising capital, the Governor added that RBI proposes to put in place a mechanism for encouraging voluntary mergers UCBs through appropriate incentives. “We also propose to create a Centralised Fraud Registry for UCBs,” he said further.

Referring to the private sector banks (PVBs) in the country, Das said the governance issues in this sector originates from an altogether different set of concerns.  “The issues here mainly relate to incentive structure of their managements, quality of audits and compliance and also efficient functioning of Audit and Risk Management Committees,” he said.

The Reserve Bank has issued a discussion paper on proposed guidelines for compensation in private sector banks, which includes specification of minimum variable pay component and claw-back arrangements.

Expressing his displeasure over the public sector banks depending overly on government’s capital infusion to improve their balance sheets, the RBI governor said they should not be too dependent on this route for the fund raise.

“Depending upon individual situations, PSBs should access the capital market for mobilisation of capital,” he said. He stressed the need for the PSB boards to improve further and for this, he said, public sector banks should strive to enhance the quality and stability of their boards through further streamlining appointment process, succession planning and compensation.

Das highlighted the need to closely monitor the performance of MDs/CEOs of both public and private sector banks, adding that this should be closely monitored by the Board of Directors either through a sub-committee or through an external peer group review.

Though the government has announced two new National Company Law Tribunal (NCLT) benches at Indore and Amravati, the resolution of bad loans in the banking sector will still see heavy backlogs yet to be resolved.

Das said that more benches as well as members are required to address the issue of large number of unresolved insolvency issues pending in the banking industry.

In order to address this issue,RBI has decided to open new RBI Professorial Chair at the Indian Institute of Corporate Affairs (IICA), Manesar, Haryana, which is starting a two-year Graduate Insolvency Programme to increase the pool of trained insolvency professionals.

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