Reserve Bank Governor Shaktikanta Das urged the directors of UCBs to further strengthen their governance practises, especially the three supporting pillars of compliance, risk management, and internal audit. He recalled the goals and strengths of UCBs in promoting financial inclusion and fostering economic development by providing last-mile connectivity. "The quality of governance was the most important aspect in ensuring the stability of individual banks, and the directors of UCBs are urged to further strengthen governance practises," the RBI governor said at a gathering of directors on the boards of Tier 3 and 4 UCBs in Mumbai Zone.
The RBI governor noted that while the UCB sector has displayed improved financial performance at an aggregate level in recent times, concerns and vulnerabilities are seen for certain individual entities. He highlighted the need for the UCBs to strengthen their financial and operational resilience so as to contribute to the overall financial and banking sector stability. On the functioning of boards, Das emphasized five aspects - adequate skills and expertise of directors, the 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 release.
The RBI governor also stressed the need for the 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. The conference was also deputy governors M. Rajeshwar Rao and Swaminathan J., along with executive directors representing the RBI’s Departments of Supervision, Regulation and Enforcement, and other senior officials. The Reserve Bank would be convening similar conferences of directors on boards of other Urban Cooperative Banks in other regions of the country.