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Cooperative Banking

NAFCUB urges RBI to allow new directors of UCBs to continue

The National Federation of Urban Cooperative Banks and Credit Societies has appealed to the Reserve Bank of India to allow newly elected directors of UCBs to continue in their positions as directors in accordance with co-operative laws. NAFCUB has also suggested that the regulator form a committee consisting of members from the RBI, the Ministry of Cooperation, the Government of India, a few state governments, NAFCUB, and state federations to determine the modalities of implementing the jurisdictional issues arising from the Banking Regulation (Amendment) Act 2020 in such a way that the cooperative values of the UCBs are not affected while the RBI has effective regulation. This will help cooperative banks avoid violations of cooperative laws and ensure a seamless transition over time. 

In a letter addressed to the RBI Governor, Jyotindra Mehta, President of NAFCUB, stated that the eight-year cap for members of the Board of Directors prescribed in the amended BR Act, 2020, is in violation of the provisions of the 97th amendment of the Constitution, as well as the provisions of the MSCS Act, 2002, and the Cooperative Societies Acts of various states. The 97th amendment also envisages that cooperative society formation is a fundamental right. Even while bringing the amendment to the BR Act, 2020, the Finance Minister stated that the implementation of the provision of the amendment in the BR Act, 2020, will be in conformity with the basic provisions governing societies. However, it is observed that the above provisions of Section 10 (2A) (1) of the amended BR Act infringe not only the Constitution but also the co-operative principles of democratic control and open membership, as enshrined in the International Cooperative Alliance (ICA) and the co-operative laws of the country. 

Section 53 of the Amendment Bill states that the RBI may, by notification, exempt a cooperative bank or a class of cooperative banks from certain provisions of the Act. These provisions relate to restrictions on certain types of employment, the qualifications of the Board of Directors, and the appointment of a chairman. The RBI will also specify the time duration and criteria for the exemption. The aforementioned amendment has created an uncertain scenario in the UCB sector, and its normal functioning has been jeopardized. In view of this, and given the serious implications and cascading effect on the management of UCBs across the country, NAFCUB has appealed to the RBI to examine the matter and consider invoking the powers vested in the RBI under Section 53 of the BR Act to defer the implementation of the provisions contained in Section 10 (2A) I of the Act and allow the newly elected directors to continue in their positions as directors as per the co-operative laws.

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