The Reserve Bank of India (RBI) has requested all Registrars of Co-operative Societies (RCSs) to restrict individual shareholding in an urban co-operative bank (UCB) to 5 per cent of the total paid-up share capital.
In its meeting with the registrars of various states on improving corporate governance in urban co-operative banks, RBI suggested that the current norms prescribed by various statutes/ rules for individual shareholding in urban co-operative banks were varying and created aberrations in corporate governance, considering the co-operative principle of one member one vote.
Official sources clarified that earlier in 2008, the central bank had requested the state governments to suitably amend the by-laws of the Co-operative Act to restrict individual shareholding of UCBs. Although no further development took place in this regard.
Sources explained that this time the suggestion might be made mandatory for the banks to avail a revival package from the government.
It has further requested the state governments not to register any new primary credit societies with a provision for acceptance of public deposits. This is because such co-operative societies automatically become eligible to act as co-operative banks under the Banking Regulation Act (BRA), when their paid-up share capital and reserves exceed Rs 1 lakh.
Besides, the central bank has for the first time prescribed a clear-cut criteria for promoters of new UCBs. Currently, there are no criteria for promoters as the Registrar of Cooperative Societies monitors the appointment of directors on the board of UCBs. The central bank had earlier directed appointment of professional directors on these banks’ boards.
Among the criteria for promoters, RBI has suggested that the promoters should not be a defaulter to any financial institution/ bank/ co-operative bank/ society etc. There should not be any criminal proceedings against promoters and they should not be associated in the capacity of a director with any chit funds/ non-banking finance companies or other co-operative banks. Besides, there should be at least two directors at all times with suitable banking experience or persons with relevant professional qualification such as chartered accountants with banking experience on the board. UCBs should also provide for due representation of non-member depositors on the board. A non-member depositor of the bank means an ordinary depositor who is neither a shareholder of the bank nor a member of the co-operative society.