| Board of Directors
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CONSTITUTION OF BOARD OF DIRECTORS
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1.1
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The primary (urban) co-operative banks have been functioning
under the supervision and control of Reserve Bank for banking
related functions in terms of the powers vested in it, under Banking
Regulation Act, 1949 (As applicable to co-operative societies) and
the Reserve Bank of India Act, 1934.
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1.2
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However, the administrative and managerial functions,
elections and appointment of directors, etc. of these banks come
under the purview of respective State/Central Government by virtue
of the provisions of the respective state co-operative societies act
and multi state co-operative societies act.
The various co-operative societies acts, the by-laws framed
there under and model by-laws spell out the duties, functions and
obligations of directors of these banks.
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1.3
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Since the directors are elected from amongst the members
(except co-opted and nominated directors), the persons who are not
eligible for admission even as members cannot act as promoters or
become directors of the bank. In
particular, persons engaged in money lending, financing and
investment activities, either in individual capacity or as
proprietor/partner/employee/director of any concern as also those
convicted of any criminal offences including moral turpitude are
ineligible in terms of clause b (ii) of the model by-law no.9 and/or
the provisions contained in the co-operative societies act
(concerned). The Board
of Directors (BODs) is primarily concerned with the formulation of
policies keeping in view the guidelines issued by RBI and
state/central government. The
Board should also exercise overall supervision and control over the
functioning of the bank, leaving day to day administration to the
chief executive officer.
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1.4
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The recommendations made by the “Committee on Urban
Co-operative Banks”, headed by Shri Madhava Das, regarding the
BODs and recommended by Reserve Bank for adoption by the banks are
indicated in Annexure 1.
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1.5
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The directors of primary (urban) co-operative banks
must be knowledgeable and persons of high integrity.
They must function in a cohesive manner and provide proper
leadership for the smooth and efficient management of the affairs of
the bank. This calls for
a certain degree of professionalism in the BODs.
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1.6 |
To ensure professionalism in the Board, the banks should
have at least two directors with suitable banking experience
(at middle/senior management level) or with relevant professional
qualifications i.e., chartered accountants with bank
accounting/auditing experience.
The banks should also have a suitable provision in their
by-laws to ensure this.
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| 2 |
ROLE OF DIRECTORS -
DOs AND DON’TS
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2.1
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The BODs of the primary
(urban) co-operative bank should ensure that proper loan policies
are adopted and followed.
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2.2 |
It should be ensured
that all circulars and other material relating to policies issued by
RBI/Government are seen by every member of the Board and also placed
before the Board for suitable action.
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2.3 |
A list of DOs
and DON’TS for guidance of the directors of primary (urban)
co-op. banks is given below. The
list is illustrative and not exhaustive and is not to be regarded as
a substitute to the specified duties, responsibilities or rights of
the Board of Directors as enunciated in the co-operative law and/or
by-laws of the respective banks.
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DOs
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(a) |
Discipline
& Involvement : The directors should
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i) |
attend the board meeting regularly and effectively.
They should work in a spirit of co-operation.
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ii) |
study the board papers thoroughly and use the good offices of
the chief executive officer for eliciting any information at the
Board Meeting.
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iii) |
ask the chairman to furnish the board papers and follow up
reports on a definite time schedule.
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iv) |
be familiar with the broad objectives of the bank and the
policy laid down by the Government and the Reserve Bank.
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v) |
involve themselves thoroughly in the matter of formulation of
general policy and also ensure that performance of the bank is
monitored adequately at board level.
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(b) |
Constructive &
Development Role : The directors should :
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i) |
welcome all constructive ideas for the better management of
the bank and for making valuable contribution.
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ii) |
try to give as much of their wisdom, guidance and knowledge
as possible to the management.
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iii) |
try to analyse the trends of economy, assist in the discharge
of management’s responsibility to public and formulation of
measures to improve customer service and be generally of
constructive assistance to the bank management.
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iv) |
work as a team and not sponsor or be prejudiced against
individual proposals. Management
on its part is supposed to furnish full facts and complete papers in
advance.
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(c) |
Business
Specific Contribution
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The directors should bestow attention on
the following aspects of the bank’s working:
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i) |
compliance with monetary and credit policies of
RBI/Government
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ii) |
observance of cash reserve and statutory liquidity ratio
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iii) |
efficient management of
funds and improving profitability
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iv) |
compliance with
guidelines on income recognition, asset classification, provisioning
towards non performing assets.
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v) |
deployment of funds to
priority sector/weaker sections
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vi) |
overdues and recovery
– ensure that recoveries are made promptly and overdues reduced to
the minimum.
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vii) |
review of action taken
on RBI inspection /statutory audit reports.
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viii) |
vigilance, frauds and misappropriation
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ix) |
strengthening of
internal control system and housekeeping viz. proper maintenance of
books of accounts and periodical reconciliation.
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x) |
reviews on several
items as prescribed by RBI/Government
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xi) |
customer service
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xii) |
development of a good
management information system
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xiii) |
computerization
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DON’TS
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(a) |
Non-Interference
: The directors should not:
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i) |
interfere in the
day-to-day functioning of the bank.
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ii) |
involve
themselves in the routine or every day business and in the
management functions.
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iii) |
send
instructions/directions to any individual officer/employee of the
bank in any manner.
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(b) |
No Sponsorship :
The
directors should not
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i) |
sponsor any loan
proposal, buildings and sites for bank’s premises, enlistment or
empanelment of contractors, architects, doctors, lawyers, etc.
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ii) |
approach or influence
for sanction of any kind of facility.
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iii) |
participate in the
Board discussions, if a proposal in which they are directly or
indirectly interested, comes up for discussions.
They should disclose their interest, well in advance, to the
Chief Executive Officer and the Board.
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iv) |
sponsor any candidate
for recruitment or promotion or interfere in the process of
selection/appointment or in transfers of staff.
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v) |
do anything which will
interfere with and/or be subversive of maintenance of discipline,
good conduct and integrity of the staff.
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vi) |
involve themselves in
any matter relating to personnel administration – whether it is
appointment, transfer, posting or a promotion or a redressal of
individual grievances of any employee.
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vii) |
encourage the
individual officer/employee or unions approaching them in any
matter.
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(c) |
Confidentiality
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The directors should not reveal any information relating to
any constituent of the bank to anyone as, he is under oath of
secrecy and fidelity.
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The directors are expected to ensure confidentiality of the
bank’s agenda papers/notes. The
board papers may ordinarily be returned to the bank after the
meeting.
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The directors should not directly call for papers/files/notes
recorded by various departments
for scrutiny etc. in respect of agenda items to be discussed in the
meetings. All
information/clarification that they may require for taking a
decision should be made available by the executive.
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A director may indicate
his directorship of the bank on his visiting card or letter head,
but the logos of distinctive design of the bank should not be
displayed on the visiting card/letter head.
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The directors should ensure that the bank’s funds are
utilized in a proper and judicious manner for the benefit of general members.
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| 3 |
AUDIT COMMITTEE OF
BOARD (ACB)
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3.1 |
In order to ensure and
enhance the effectiveness of internal audit/inspection as a
management tool, an Apex Audit Committee should be set up at the
board level for overseeing and providing directions to the internal
audit/inspection machinery and other executives of the banks.
The committee may consist of the chairman and three/four
directors, one or more of such directors being chartered accountant
or having experience in management, finance, accountancy and audit
systems, etc.
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3.2 |
ACB should review the implementation of the guidelines issued
by RBI and submit a note thereon, to the board, at quarterly
intervals. The major
duties/responsibilities of the ACB are given below:
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i) |
it should provide direction and oversee the operations of the
total audit function in the bank.
The total audit function will imply the organization,
operationalisation and quality control of internal audit and
inspection within the bank and follow up on the statutory audit of
the bank and inspection of the Reserve Bank;
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ii) |
it should review the internal inspection/audit function in
the bank – the system, its quality and effectiveness in terms of
follow up. It should
review the follow up action on the internal inspection reports.
It should also specially focus on the follow up on:
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a |
inter – branch
adjustment accounts
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b |
unreconciled long
outstanding entries in inter-branch accounts and
inter-bank accounts
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c |
arrears in balancing of books at various branches
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d |
frauds and
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e |
all other major areas of housekeeping
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iii) |
compliance with the statutory audit /concurrent audit /RBI
inspection reports;
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iv) |
omission on the part of internal inspecting officials to
detect serious irregularities should be viewed seriously; and
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v) |
periodical review of the accounting policies/systems in the
bank with a view to ensuring greater transparency in the bank’s
accounts and adequacy of accounting controls.
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| 4 |
CALENDAR OF REVIEWS
– MATTERS TO BE PLACED BEFORE THE BOARD OF DIRECTORS
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It has been emphasized in the list of Dos’
and Don’ts for the Board of Directors (para 2) that directors
should bestow their attention on the periodical reviews on important
aspects of bank’s working. An
illustrative list of the reviews which should receive the attention
of the directors as also the periodicity at which these may be
placed before the Board of Directors is indicated in Annexure 2.
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| 5 |
PROHIBITION ON LOANS AND ADVANCES
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5.1 |
Primary (urban) cooperative banks are prohibited to make,
provide or renew either secured or unsecured loans and advances or
extend any other financial accommodation to their directors, or
their relatives and the firms/concerns/companies in which they are
interested with effect from 1 October 2003.
However, the following categories of director related loans
are exempted from the purview of the above instructions.
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i) |
Regular
employee-related loans to staff directors on the Board of UCBs;
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ii) |
Normal loans as
applicable to members to the directors on the Boards of salary
earners’ co-operative banks and
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iii) |
Normal employee-related
loans to Managing Directors of Multi-State co-operative banks.
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The existing advances may be allowed to continue upto the
date when they are due.
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5.2 |
The words ‘any other financial accommodation’ shall
include funded and non-funded credit limits and underwritings and
similar commitments, as under:
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a |
The funded limits shall include loans and advances by way of
bills purchase/discounting, pre-shipment and post-shipment credit
facilities and deferred payment guarantee limits extended for any
purpose including purchase of capital equipment and acceptance
limits in connection therewith sanctioned to borrowers and
guarantees by issue of which a bank undertakes financial obligation
to enable its constituents to acquire capital assets.
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b |
The non-funded limits shall include letters of credit,
guarantees other than those referred to in paragraph (a) above, and
underwritings and similar commitments.
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5.3 |
A person shall be
deemed to be relative of another, if and only if,:-
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a |
they are members of a Hindu Undivided Family; or
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b |
they are husband and wife; or
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c |
the one is related to the other in the manner indicated below:
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