RBI sets rules for appointment of MD/CEO of co-operative banks
05 July 2021
A primary urban co-operative bank (UCB) wanting to appoint a person as managing director, who may also be designated as chief executive officer or by any other name, and entrusted with the management of the whole, or substantially the whole of the affairs of the bank, should ensure that the ‘fit and proper’ criteria is fulfilled by the person being appointed as MD/ WTD, the Reserve Bank of India stated in a notification.
The person being appointed to head a co-operative bank should at least be a graduate, preferably, with qualification in banking/ co-operative banking such as CAIIB / diploma in banking and finance / diploma in co-operative business management or equivalent qualification; or a chartered / cost accountant / MBA (Finance) or a post graduate in any discipline.
The person should not be below the age of 35 years and above the age of 70 years at any time during his/ her term in office. However, within the overall limit of 70 years, as part of their internal policy, individual bank's boards are free to prescribe a lower retirement age, RBI said.
He/she should have a combined experience of at least eight years at the middle / senior management level in the banking sector (including the experience gained in the concerned UCB, or non-banking finance companies engaged in lending (loan companies) and asset financing.
Knowledge of regional language may be considered as an advantage.
The person being appointed as managing director or CEO or both should not:
- be engaged in any other business or vocation;
- be holding the position of a MP, an MLA or a member of a local self government;
- be a director of any company other than a company registered under section 8 of the Companies Act, 2013;
- be a partner of any firm which carries on any trade, business or industry;
- have substantial interest in any company or firm as defined in Section 5(ne) read with section 56 of the Banking Regulations Act, 1949;
- be a director, manager, managing agent, partner or proprietor of any trading, commercial or industrial concern;
- be of unsound mind and stands so declared by a competent court;
- be an undischarged insolvent;
- be convicted by a criminal court of an offence involving moral turpitude; or
- be a director of any other co-operative bank or a co-operative credit society.
The person should submit a self-declaration on personal integrity. The tenure of MD/ WTD should not be more than five years at a time, subject to a minimum period of three years at the time of first appointment, unless terminated or removed earlier, and should be eligible for re-appointment. The performance of MD/WTD should be reviewed by the board annually.
However, the post of the MD or WTD cannot be held by the same incumbent for more than 15 years. Thereafter, the individual will be eligible for re-appointment as MD / WTD in the same bank, if considered necessary and desirable by the board, after a minimum gap of three years, subject to meeting other conditions. During this three-year cooling period, the individual should not be appointed or associated with the bank in any capacity, either directly or indirectly.
RBI has directed UCBs whose existing MD/CEO has completed a tenure of five years at the time of issue of this circular or subsequently, to approach it either to seek re-appointment of the incumbent, if he/she is eligible, or for appointment of a new MD/CEO, within a period of two months from the date of issue of this circular.
UCBs should constitute a `Nomination and Remuneration Committee (NRC)’ consisting of three directors from amongst the board of directors (BoD) and nominate one among them as chairman of the NRC. All three members of the NRC are required to be present at each meeting. In case of absence of any member nominated to the NRC, the BoD should nominate any other director in his place to ensure the quorum. At the time of constituting the NRC, the BoD should also decide its tenure.
Subject to any regulations or directions or guidelines issued by the Reserve Bank from time to time, the NRC will undertake a process of due diligence to determine the ‘fit and proper’ status of a person being considered for appointment as MD/ WTD.
UCBs should obtain necessary ‘Declaration and Undertaking’ from the shortlisted candidates. On completion of the process of due diligence, the NRC should identify the persons from among the shortlisted candidates and recommend to the BoD for appointment as MD/ WTD.
NRC should also recommend the remuneration payable to the MD/ WTD. While recommending the remuneration, the NRC should ensure that the cost / income ratio of the bank supports the compensation package and it is consistent with the maintenance of a sound capital adequacy ratio.
The BoD may pass an appropriate resolution for forwarding the name(s) of the person/s from the panel recommended by the NRC for appointment as MD/ WTD, if it is satisfied that the NRC’s recommendations on the proposed appointment and remuneration are in order.
In order to expedite the process of appointment, UCBs may submit a panel of at least two names in the order of preference for appointment of new MD/ WTD, to the Reserve Bank, four months before the expiry of the term of office of the present incumbent.
Non-scheduled UCBs with a deposit size of Rs1,000 crore and above as per preceding year’s audited balance sheet and all scheduled UCBs should submit the proposal for appointment of MD/ WTD, along with the supporting documents to RBI’s Department of Regulation, Central Office, Mumbai. Non-scheduled UCBs with a deposit size of Rs100 crore or above but below Rs1,000 crore as per preceding year’s audited balance sheet shall approach the regional office/central office (in case of UCBs under jurisdiction of Mumbai office) of RBI’s Department of Supervision, under whose jurisdiction the registered office of the UCB is situated, for the requisite approval. RBI, however, has reserved the right to seek any additional information/documents as it considers necessary.
In the case of a proposal for re-appointment of the incumbent MD/ WTD, the UCBs should follow the same procedure as prescribed by submitting the complete application in the prescribed form, ie, ‘Form A’ along with ‘Declaration and Undertaking’ from the candidate, supported by the recommendation of NRC, resolution of the board approving the recommendation of NRC for re-appointment and a declaration from the UCB that the information is true and complete, to the Reserve Bank six months before the expiry of the term of office of the incumbent.
In case a UCB decides to terminate the services of MD/ WTD before the expiry of tenure, it should seek prior approval of the Reserve Bank, by submitting detailed reasons thereof along with the relevant documents and a board resolution to that effect.
Appointment of MD/WTD on temporary basis in UCBs should be made as per the provisions of section 10B(9) read with section 56 of the Act. Accordingly, the bank may, with the approval of the Reserve Bank, make suitable arrangements for carrying out the duties of MD/ WTD for a period of not exceeding four months. The bank should complete the process of regular appointment within the period of four months.
MD/WTD should be an ex-officio member of the BoD and may have voting rights in board meetings, if it is permissible under the provisions of the co-operative societies Act.
RBI said these directions have immediate effect.