RBI bars MPs, MLAs from holding MD post in urban cooperative banks

In a crackdown on political interference, the Reserve Bank of India has barred MPs, MLAs and members of municipal corporations or other local bodies from holding the office of managing director (MD) or whole-time director (WTD) in urban cooperative banks.

These directions are applicable to all Primary (Urban) Co-operative Banks (UCBs). The RBI had exempted UCBs with a deposit size of less than Rs 100 crore from the requirement of seeking prior approval of the Reserve Bank for appointment / re-appointment / termination of appointment of MDs or WTDs.

Under the propriety criteria, the person to be nominated as MD or WTD shall not be engaged in any other business or vocation; shall not hold the position of a Member of Parliament or state legislature or municipal corporation or municipality or other local bodies; and shall not be a director of any company other than a company registered under Section 8 of the Companies Act, 2013.

In addition, he shall not be a partner of any firm which carries on any trade, business or industry; should not have substantial interest in any company or firm as defined in Section 5 (ne) read with Section 56 of the Banking Regulations Act, 1949; and shall not be a director, manager, managing agent, partner or proprietor of any trading, commercial or industrial concern.

In addition, the person should not be of unsound mind and stands so declared by a competent court; should not be an undischarged insolvent; should not be convicted by a criminal court of an offence involving moral turpitude; and should not be a director of any other co-operative bank or a co-operative credit society. The person shall submit a self-declaration form on personal integrity.

While the exempted UCBs are not required to obtain prior approval, they are required to formulate a board approved policy based on all the other provisions of these directions for appointment / re-appointment / termination of appointment of MD or WTD.

These banks shall immediately report the appointment / re-appointment / termination of appointment of MD or WTD to the respective regional offices (Department of Supervision, Central Office, in case of UCBs under jurisdiction of Mumbai office) of the Reserve Bank.

The UCBs shall review the ‘Fit and Proper' status of the existing MDs in terms of these directions and confirm the same, with the approval of board of directors to the concerned regional office within a period of two months from the date of issuance of the circular.

In case the present MD does not satisfy the prescribed ‘Fit and Proper' criteria, the UCB shall initiate the process for appointment of a new MD immediately. If a UCB had appointed a WTD, the bank shall follow the same procedure to comply with these directions.