Reserve Bank of India (RBI) Governor Shaktikanta Das on Wednesday said while the Urban Cooperative Bank (UCB) sector showed improved financial performance at an aggregate level in the recent times, concerns and vulnerabilities were seen for certain individual entities.
Without naming the entities, he highlighted the need for the UCBs to strengthen financial and operational resilience to contribute to the overall financial and banking sector stability.
The Governor was addressing a conference of directors on the boards of tier 3 and 4 UCBs in Mumbai Zone.
Turning to specific expectations from the UCBs, the Governor stressed that the quality of governance was the most important aspect in ensuring stability of individual banks and urged the directors of UCBs to further strengthen governance practices, especially the three supporting pillars of Compliance, Risk Management, and Internal Audit.
“On the functioning of the boards, the Governor emphasised on five aspects - adequate skills and expertise of directors, constitution of a professional board of management, diversity and tenure of board members, transparent and participatory nature of board discussions, and effective functioning of board-level Committees,” the RBI said in a statement.
He also reinforced the need for board’s involvement in upholding rigorous credit risk management, including robust underwriting standards, effective post-sanction monitoring, timely recognition and mitigation of incipient stress, rigorous follow up of large NPA borrowers for effective recovery, and maintaining adequate provisioning.
Emphasizing that the role of directors was very significant in ensuring the integrity and transparency of financial statements, he cautioned against use of innovative accounting practices to camouflage the actual financial position.
The Governor urged the boards to be more proactive in Asset Liability Management and the necessity of managing liquidity risk in a more systematic manner.
He also stressed that the board’s role was pivotal in establishing a robust IT and cybersecurity infrastructure and availability of requisite skills at the bank level.
Of late, the RBI has started engaging with the directors of its regulated entities functioning in different segments of the financial system.
Two separate conferences were held with Directors on Boards of Public Sector Banks and Private Sector Banks in May this year.
Towards this process, Wednesday’s Conference was organised for select large UCBs in Mumbai Zone.
Going forward, Reserve Bank would be convening similar Conferences of Directors on Boards of other Urban Cooperative Banks in other regions of the country, the RBI said.
