Tag Archives: co-operative banks

penalty on Greater Bombay Bank

RBI imposed monetary penalty on The Greater Bombay Co-operative Bank Limited of Rs.2.5 million as per their press release issued yesterday.

https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=52057

The Reserve Bank of India (RBI) has, by an order dated August 12, 2021, imposed a monetary penalty of ₹25 lakh (Rupees twenty five lakh only) on The Greater Bombay Co-operative Bank Ltd., Mumbai, Maharashtra (the bank) for non-compliance with directions issued by RBI on ‘Frauds in UCBs: Changes in monitoring and reporting mechanism. This penalty has been imposed in exercise of powers vested in RBI under section 47 A (1) (c) read with sections 46 (4) (i) and 56 of the Banking Regulation Act, 1949.

This action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.

Background

The statutory inspection of the bank conducted by the RBI with reference to the bank’s financial position as on March 31, 2019, the Inspection Report (IR) pertaining thereto, and examination of all related correspondence revealed, inter alia, non-compliance with aforesaid directions issued by RBI. In furtherance to the same, a notice was issued to the bank advising it to show cause as to why penalty should not be imposed for contravention of the directions issued by RBI. After considering the bank’s reply to the notice, oral submissions made in the personal hearing, RBI came to the conclusion that the aforesaid charges were substantiated and warranted imposition of monetary penalty.

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outsourcing of financial services

RBI has laid down guidelines for outsourcing of financial services/ activities by co-operative banks vide their circular dated 28th June, 2021. Co-operative banks have been asked to conduct an assessment of their present outsourcing activities and bring them in line with these guidelines. The salient features of the guidelines are :

Guidelines on Managing Risks in Outsourcing of Financial services by Co-operative Banks

Introduction

1.1 ‘Outsourcing’ is defined as use of a third party to perform activities on a continuing basis that would normally be undertaken by a co-operative bank itself, now or in the future. ‘Continuing basis’ would include agreements for a limited period.

1.2 These guidelines are intended to provide direction and guidance to co-operative banks to adopt sound and responsive risk management practices for effective oversight, due diligence and management of risks arising from outsourcing activities.

1.3 The underlying principles behind these guidelines are that the co-operative bank should ensure that outsourcing arrangements neither diminish its ability to fulfil its obligations to customers and RBI, nor impede effective supervision by Reserve Bank of India (RBI)/ National Bank for Agriculture and Development (NABARD)1. Co-operative banks, therefore, have to take steps to ensure that the service provider employs the same high standard of care in performing the services as would be employed by them, if the activities were conducted by the banks and not outsourced. Accordingly, co-operative banks should not engage in outsourcing that would result in their internal control, business conduct or reputation being compromised or weakened.

1.4 These guidelines are concerned with managing risks in outsourcing of financial services and are not applicable to technology-related issues as also activities not related to financial services like usage of courier, catering of staff, housekeeping and janitorial services, security of the premises, movement and archiving of records, etc. Co-operative banks which desire to outsource would not require prior approval from RBI / NABARD. However, such arrangements would be subject to on-site / off-site monitoring and inspection/scrutiny by RBI / NABARD.

2. Activities that shall not be outsourced

Co-operative banks which choose to outsource financial services, however, shall not outsource core management functions including policy formulation, internal audit and compliance, compliance with KYC norms, credit sanction and management of investment portfolio. However, where required, experts, including former employees, could be hired on a contractual basis subject to the Audit Committee of Board/Board being assured that such expertise does not exist within the audit function of the bank. Any conflict of interest in such matters shall be recognised and effectively addressed. Ownership of audit reports in all cases shall rest with regular functionaries of the internal audit function.

3. Material Outsourcing

During Inspections/ scrutinies, RBI / NABARD will review the implementation of these guidelines to assess the quality of related risk management systems particularly in respect of material outsourcing. Material outsourcing arrangements are those, which if disrupted, have the potential to significantly impact the business operations, reputation or profitability of co-operative banks. Materiality of outsourcing would be based on:-

  1. The level of importance to the co-operative bank of the activity being outsourced as well as the significance of the risk posed by the same;
  2. The potential impact of the outsourcing by the co-operative bank on various parameters such as earnings, solvency, liquidity, funding capital and risk profile;
  3. The likely impact on the co-operative bank’s reputation and brand value, and ability to achieve its business objectives, strategies and plans, should the service provider fail to perform the service;
  4. The cost of the outsourcing as a proportion of total operating costs of the co-operative bank;
  5. The aggregate exposure to that particular service provider, in cases where the co-operative bank outsources various functions to the same service provider;
  6. The significance of activities outsourced in context of customer service and protection.

4. Co-operative bank’s role

4.1 The outsourcing of any activity by a co-operative bank does not diminish its obligations, and those of its Board and CEO along with the Management, who have the ultimate responsibility for the outsourced activity. Co-operative banks shall, therefore, be responsible for the actions of their service provider including actions of the Business Correspondents and their retail outlets / sub-agents and the confidentiality of information pertaining to the customers that is available with the service provider. The bank shall retain ultimate control of the outsourced activity.

4.2 The co-operative banks shall consider all relevant laws, regulations, guidelines and conditions of approval, licensing or registration when performing its due diligence in relation to outsourcing.

4.3 The grievance redressal mechanism of co-operative banks should not be compromised on account of outsourcing. Outsourcing arrangements shall not affect the rights of a customer against the co-operative bank, including the ability of the customers to redress their grievances as applicable under relevant laws.

4.4 Outsourcing shall not impede or interfere with the ability of a co-operative bank to effectively oversee and manage its activities nor should it impede RBI / NABARD in carrying out its supervisory functions and objectives.

4.5 The service provider should not be owned or controlled by any director or officer/employee of the co-operative bank or their relatives having the same meaning as assigned under the Companies Act, 2013 and the Rules framed thereunder from time to time.

5. Risk Management practices for outsourcing

5.1 Outsourcing Policy

A co-operative bank intending to outsource any of its financial activities shall put in place a comprehensive outsourcing policy, approved by its Board, which incorporates, inter alia, criteria for selection of such activities as well as service providers, parameters for defining material outsourcing based on the broad criteria indicated in para 3, delegation of authority depending on risks and materiality and systems to monitor and review the operations of these activities.

5.2 Role of the Board of Directors (Board), and CEO along with the Senior Management

5.2.1 The Board, and CEO along with the Senior Management shall be ultimately responsible for outsourcing operations and for managing risks inherent in such outsourcing relationships. The Board and CEO along with the Management shall have the responsibility to institute an effective governance mechanism and risk management process for all outsourced operations.

The Board shall be responsible, inter alia, for: –

  1. Approving a framework to evaluate the risks and materiality of all existing and prospective outsourcing and the policies that apply to such arrangements;
  2. Laying down appropriate approval authorities for outsourcing depending on risks and materiality;
  3. Undertaking regular review of the framework for its efficacy and update the same to ensure that the outsourcing strategies and arrangements have continued relevance, effectiveness, safety and soundness;
  4. Deciding on business activities of a material nature to be outsourced and approving such arrangements;
  5. Assessment of management competencies to develop sound and responsive outsourcing risk management policies and procedures commensurate with the nature, scope, and complexity of outsourcing arrangements; and
  6. Setting up suitable administrative framework of management for the purpose of these guidelines.

5.2.2 Chief Executive Officer (CEO) and Senior Management of the bank shall be responsible for:

  1. Evaluating the risks and materiality of all existing and prospective outsourcing, based on the framework approved by the Board;
  2. Developing and implementing sound and prudent procedures commensurate with the nature, scope and complexity of the outsourcing;
  3. Reviewing periodically the effectiveness of policies and procedures;
  4. Communicating information pertaining to material outsourcing risks to the Board in a timely manner;
  5. Ensuring that contingency plans, based on realistic and probable disruptive scenarios, are in place and tested;
  6. Ensuring that there is independent review and audit for compliance with set policies; and
  7. Undertaking periodic review of outsourcing arrangements to identify new material outsourcing risks.

5.3 Evaluation of the Risks

The indicative key risks in outsourcing that need to be evaluated by the co-operative banks are: –

  1. Strategic Risk – The service provider may conduct business on its own behalf, which is inconsistent with the overall strategic goals of the bank.
  2. Reputation Risk – Poor service from the service provider, its customer interaction not being consistent with the overall standards of the bank, or failure in preservation and protection of confidential customer information.
  3. Compliance Risk – Privacy, consumer and prudential laws not adequately complied with.
  4. Operational Risk – Arising due to technology failure, fraud, error, inadequate financial capacity to fulfil obligations and/or provide remedies.
  5. Legal Risk – Includes but is not limited to exposure to fines, penalties, or punitive damages resulting from supervisory actions, as well as private settlements due to omissions and commissions of the service provider.
  6. Exit Strategy Risk – This could arise from over-reliance on one firm, the loss of relevant skills in the bank itself preventing it from bringing the activity back in-house and where the bank has entered into contracts wherein speedy exits would be prohibitively expensive.
  7. Counterparty Risk – Due to inappropriate underwriting or credit assessments.
  8. Contractual Risk – Arising from whether or not the bank has the ability to enforce the contract.
  9. Country Risk – Due to political, social or legal climate creating added risk.
  10. Concentration and Systemic Risk – Due to lack of control of individual banks over a service provider, more so when overall banking industry has considerable exposure to one service provider.

5.4 Evaluating the Capability of the Service Provider

5.4.1 In considering or renewing an outsourcing arrangement, co-operative banks shall undertake appropriate due diligence to assess the capability of the service provider to comply with obligations in the outsourcing agreement. Due diligence should take into consideration qualitative, quantitative, financial, operational and reputational factors. Co-operative banks shall consider whether the service providers’ systems are compatible with their own and also whether their standards of performance including in the area of customer service are acceptable to it. Co-operative banks shall also consider, while evaluating the capability of the service provider, issues relating to undue concentration of outsourcing arrangements with a single service provider. Where possible, co-operative banks may obtain independent reviews and market feedback on the service provider to supplement their own findings.

5.4.2 Due diligence should involve an evaluation of all available information about the service provider, including but not limited to the following: –

  1. Past experience, competence to implement and support the proposed activity over the contracted period;
  2. Financial soundness and ability to service commitments even under adverse conditions;
  3. Business reputation, culture, compliance, complaints and outstanding or potential litigation;
  4. Security, internal controls, audit coverage, reporting, monitoring and business continuity management;
  5. External factors like political, economic, social and legal environment of the jurisdiction in which the service provider operates and other events that may impact service performance;
  6. Ensuring due diligence by service provider of his employees; and.
  7. Ability to effectively service all the customers with confidentiality where a service provider has exposure to multiple banks.

5.5 The Outsourcing Agreement

The terms and conditions governing the contract between a co-operative bank and service provider should be carefully defined in written agreements and vetted by bank’s legal counsel on their legal effect and enforceability. Every such agreement should address the risks and risk mitigation strategies. The agreement should be sufficiently flexible to allow the bank to retain an appropriate level of control over the outsourcing and the right to intervene with appropriate measures to meet legal and regulatory obligations. The agreement should also bring out the nature of legal relationship between the parties, i.e., whether agent, principal or otherwise.

Some of the key provisions of the contract would be:

  1. The contract should clearly define the activities being outsourced including Service Level Agreements (SLAs) to agree and establish accountability for performance expectations. SLAs must clearly formalize the performance criteria to measure the quality and quantity of service levels.
  2. The co-operative bank shall ensure its ability to access all books, records and information relevant to the outsourced activity available with the service provider.
  3. The contract should provide for continuous monitoring and assessment of the service provider by the co-operative bank so that any necessary corrective measure can be initiated immediately.
  4. Controls to ensure customer data confidentiality and service providers’ liability in case of breach of security and leakage of confidential customer related information shall be incorporated.
  5. A termination clause and notice period should be included.
  6. Contingency plans to ensure business continuity should be included.
  7. The contract should provide for the prior approval/consent of co-operative bank for use of subcontractors by the service provider for all or part of an outsourced activity. Before according the consent, co-operative banks should review the subcontracting arrangement and ensure that these arrangements are compliant with the extant guidelines on outsourcing.
  8. The contract should provide the co-operative banks with the right to conduct audits on the service provider whether by its internal or external auditors, or by agents appointed to act on its behalf and to obtain copies of any audit or review reports and findings made on the service provider in conjunction with the services performed for the co-operative bank.
  9. Outsourcing agreement should include a clause to allow RBI/NABARD or persons authorised by it to access the co-operative bank’s documents, records of transactions, logs and other necessary information given to, stored or processed by the service provider, within a reasonable time. This includes information maintained in paper and electronic formats.
  10. Outsourcing agreement should also include a clause to recognise the right of the RBI / NABARD to cause an inspection of a service provider of a co-operative bank and its books and accounts by one or more of its officers or employees or other authorised persons.
  11. The outsourcing agreement should also provide that confidentiality of customers’ information should be maintained even after the contract expires or gets terminated. Further, co-operative bank shall have necessary provisions to ensure that the service provider preserves documents as required by law and take suitable steps to ensure that its interests are protected in this regard even post termination of the services.

5.6 Confidentiality and Security

5.6.1 Public confidence and customer trust in co-operative bank is a prerequisite for the stability and reputation of the bank. Hence, the co-operative banks shall seek to ensure the preservation and protection of the security and confidentiality of customer information in the custody of the service provider.

5.6.2 Access to customer information by staff of the service provider shall be on ‘need to know’ basis, i.e., limited to those areas where the information is required in order to perform the outsourced function.

5.6.3 The co-operative banks shall ensure that the service provider is able to isolate and clearly identify the co-operative bank’s customer information, documents, records and assets to protect the confidentiality of the information. In the instances, where service provider acts as an outsourcing agent for multiple banks, care should be taken to build adequate safeguards so that there is no comingling of information/documents, records and assets.

5.6.4 The co-operative banks shall review and monitor the security practices and control processes of the service provider on a regular basis and require the service provider to disclose security breaches.

5.6.5 The co-operative banks shall immediately notify RBI / NABARD in the event of any breach of security and leakage of confidential customer related information. In these eventualities, the co-operative bank shall be liable to its customers for any damage.

5.7 Business Continuity and Management of Disaster Recovery Plan

5.7.1 Co-operative banks shall require its service providers to develop and establish a robust framework for documenting, maintaining and testing business continuity and recovery procedures. Banks need to ensure that the service provider periodically tests the Business Continuity and Recovery Plan. Banks may also conduct joint testing and recovery exercises with its service provider at mutually agreed frequency but at least annually.

5.7.2 In order to mitigate the risk of unexpected termination of the outsourcing agreement or liquidation of the service provider, co-operative banks shall retain an appropriate level of control over their outsourcing and the right to intervene with appropriate measures to continue its business operations in such cases without incurring prohibitive expenses and without any break in the operations of the bank and its services to the customers.

5.7.3 In establishing a viable contingency plan, co-operative banks should consider the availability of alternative service providers or the possibility of bringing the outsourced activity back in-house in an emergency and the costs, time and resources that would be involved.

5.7.4 Co-operative banks to ensure that in adverse conditions and/ or termination of the contract, all documents, records of transactions and information given to the service provider and assets of the bank can be removed from the possession of the service provider in order to enable the bank to continue its business operations; or deleted, destroyed or rendered unusable.

5.8 Monitoring and Control of Outsourced Activities

5.8.1 The co-operative banks shall have in place a management structure to monitor and control their outsourcing activities. It shall also be ensured that outsourcing agreements with the service provider contain provisions to address their monitoring and control of outsourced activities.

5.8.2 A central record of all material outsourcing that is readily accessible for review by the Board and CEO along with the management of the co-operative bank shall be maintained. The records should be updated promptly and half yearly reviews should be placed before the Board.

5.8.3 Regular audits at least annually by either the internal auditors or external auditors of the bank should assess the adequacy of the risk management practices adopted in overseeing and managing the outsourcing arrangement, the bank’s compliance with its risk management framework and these guidelines.

5.8.4 Co-operative banks shall at least on an annual basis, review the financial and operational condition of the service provider to assess its ability to continue to meet its outsourcing obligations. Such due diligence reviews, which can be based on all available information about the service provider should highlight any deterioration or breach in performance standards, confidentiality and security, and in business continuity preparedness. Co-operative banks shall also submit an Annual Compliance Certificate giving the particulars of outsourcing contracts, the prescribed periodicity of audit by internal / external auditor, major findings of the audit and action taken through Board, to the Regional Offices of RBI / NABARD.

5.8.5 The event of termination of any outsourcing agreement for any reason where the service provider deals with customers, shall be publicised by displaying at a prominent place in the branches and posting it on the bank’s website so as to ensure that the customers do not continue to deal with the service provider.

5.8.6 Certain cases, like outsourcing of cash management, might involve reconciliation of transaction between the co-operative banks, the service provider and its sub-contractors. In such cases, banks should ensure reconciliation of transactions between the bank and the service provider (and /or its subcontractor) are carried out as advised in RBI guidelines on ‘Outsourcing of Cash Management – Reconciliation of Transactions’ dated May 14, 2019 as amended from time to time.

5.8.7 A robust system of internal audit of all outsourced activities shall be put in place and monitored at the Board level.

5.9 Redressal of Grievances related to Outsourced services

5.9.1 The co-operative banks shall give wide publicity to the Grievance Redressal Machinery within the bank and also by placing the information on their website. It should be clearly indicated that co-operative banks’ Grievance Redressal Machinery will also deal with the issues relating to services provided by the outsourced agencies. The name and contact number of designated grievance redressal officer of the co-operative bank should be made known and widely publicised. The designated officer should ensure that genuine grievances of customers are redressed promptly.

5.9.2 The grievance redressal procedure of the co-operative bank and the time frame fixed for responding to the complaints shall be placed on the bank’s website.

5.10 Reporting of transactions to FIU or other competent authorities

Co-operative banks shall be responsible for making Currency Transactions Reports and Suspicious Transactions Reports to FIU or any other competent authority in respect of the banks’ customer related activities carried out by the service providers.

6 Centralised List of Outsourced Agents

If a service provider’s contract is terminated prematurely prior to the completion of contracted period of service, Indian Banks’ Association (IBA) would have to be informed with reasons for termination. IBA would be maintaining a caution list of such service providers for the entire banking industry for sharing among banks.

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amalgamation of co-operative banks – RBI guidelines

The Banking Regulation (Amendment) Act, 2020 (39 of 2020) has been notified for the State Co-operative Banks (StCBs) and District Central Co-operative Banks (DCCBs) with effect from, April 1, 2021 vide Notification dated December 23, 2020 issued by Government of India. With the issue of the notification, the amalgamations of the above banks have to be sanctioned by Reserve Bank of India in terms of the provisions of the Section 44-A read with Section 56 of the Banking Regulation Act, 1949.

In recent past, a few State Governments approached RBI for amalgamation of DCCBs with the StCB as a two-tier Short-term Co-operative Credit Structure (STCCS). In order to help the States contemplating delayering their STCCS, following guidelines are being issued to bring the requirements and indicative benchmarks for the amalgamation of DCCBs with the StCB to the notice of all stakeholders. These guidelines will also apply for amalgamation of one or more DCCBs in a State with the StCB or amalgamation of one DCCB with another.

2. The Reserve Bank of India will consider proposals for amalgamation if the following conditions are fulfilled:

  1. When the State Government of the State makes a proposal to amalgamate one or more DCCB/s in the State with the StCB after conducting a detailed study of the legal framework along with additional capital infusion strategy, assurance regarding financial support if required, projected business model with clear profitability and proposed governance model for the amalgamated bank.
  2. When the scheme of amalgamation is approved by the requisite majority of shareholders in accordance with the provisions of Section 44A read with Section 56 of the Banking Regulation Act, 1949.
  3. When such proposal of the State Government has been examined and recommended by NABARD.

3. The proposal for amalgamation of DCCBs with the StCB will be examined by Reserve Bank in consultation with NABARD and the sanction/ approval will be a two-stage process. In the first stage, an ‘in-principle’ approval will be accorded subject to fulfilment of certain conditions, following which the processes for amalgamation may be initiated by all concerned. After completion of the above processes, NABARD and Reserve Bank may be approached for final approval along with compliance report. To enable the Reserve Bank to consider the application for sanction, the State Government shall submit the information and documents specified in the Annex to the concerned Regional Office of Reserve Bank and NABARD.

Regulatory Criteria

4. The basic regulatory criteria for amalgamation shall be as under:

  1. The proposal should be in compliance with the legal requirements, past orders/ rulings of the Courts, if any. The State Government shall verify that there are no Court Orders prohibiting or staying the proposal for amalgamation.
  2. Financial parameters of the amalgamated entity based on notionally consolidated latest audited financial statements should be robust. It should have its CRAR above the prescribed regulatory minimum, Gross NPA below 7% and Net NPA below 5% and availability of adequate liquid assets. Post-amalgamation, it should be a profit making and financially viable entity on sustained basis.
  3. The StCB should have a satisfactory track record of regulatory and supervisory compliance.
  4. The StCB should have strong governance/ management practices.

General considerations governing the In-principle Approval

5. The general considerations governing the in-principle approval by RBI shall be as under:

  1. The scheme of amalgamation shall be presented to the shareholders of the StCB/ DCCBs. A resolution shall be passed by 2/3rd of the majority of the shareholders, both in number and value, present and voting at a General Body Meeting of StCB and each DCCB as required under section 44(A) read with section 56 of the Banking Regulation Act, 1949.
  2. An MOU shall be executed by the constituents i.e. amalgamating DCCBs, StCB and State Government covering issues of governance structure, management, manpower/HR issues and the manner of arriving at the share swap ratio based on the net worth of DCCBs (Networth of the StCB/ DCCB to be computed as per the guidelines issued by NABARD in circular NB.DoS.HO.POL/2069/J-1/2012-13 Circular No.211/DoS 28/2012 dated August 24, 2012 and other circulars issued from time to time) which are proposed to be amalgamated with the StCB. A copy of the MOU shall be submitted to RBI / NABARD.
  3. Due diligence on the amalgamating entities shall be carried out by Chartered Accountants. Shares in the amalgamated entity will be allotted on the basis of the net worth of the amalgamating banks. Share swap ratios for allotment of shares will be required to be worked out on the basis of valuation of assets and liabilities done by a chartered accountant firm registered with IBBI as valuers.
  4. If as a result of share swap ratio based on net worth, shareholders of some DCCBs cannot be allotted any shares, the State Government shall infuse sufficient capital in such DCCBs to ensure that the shareholders of such DCCBs are allotted at least one share each.
  5. In addition to compliance with extant income recognition, asset classification and provisioning norms, full provision shall be made for impairment of assets, if any, on account of frauds, misappropriation etc. while arriving at the value of net assets of the amalgamating banks.
  6. The StCB, post-amalgamation, shall be required to adhere to the CRAR norms prescribed by RBI from time to time. The shortfall in capital, if required, for meeting CRAR requirement shall be met by State Government on an ongoing basis.
  7. The StCB, post-amalgamation, shall meet with the regulatory requirements laid down for grant of various permissions/approvals given to the amalgamating banks so that none of the services currently extended by the banks under amalgamation get jeopardized. The required regulatory approvals for the said services shall be obtained, if required, before the amalgamated entity commences operations. In case the StCB is not eligible to continue with certain lines of business which the amalgamating banks have been permitted, such lines of business shall be phased-out non-disruptively within one year of grant of final approval.
  8. StCB shall ensure to appropriately configure its IT system to enable system integration with all DCCBs before applying for final approval. The migration audit on IT systems of all the DCCBs shall be completed before the amalgamation. System integrity shall be established and certified before the DCCBs can migrate onto the StCB platform.
  9. A new Board of the amalgamated bank shall be constituted within three months of amalgamation. The MD/ CEO who is to be appointed should meet the Fit & Proper criteria prescribed by RBI.
  10. In addition to the Board of Directors, a Board of Management (BoM) shall be set up for the StCB within three months of amalgamation as prescribed in terms of the circular DoR(PCB).BPD.Cir.No.8/12.05.002/2019-20 dated December 31, 2019 addressed to Urban Co-operative banks. For this purpose, the bye-laws of the StCB shall be amended for incorporating the provisions relating to guidelines on BoM issued by RBI.
  11. The banking licence issued to the StCB shall continue after the process of amalgamation. DCCBs which are being amalgamated into the StCB shall surrender their licences to RBI. The process of surrendering licences shall be completed within three months of amalgamation.
  12. Existing branches of the DCCBs shall be converted into branches of the StCB and will come under the purview of Section 23 of the BR Act, 1949 (AACS). Thus, the StCB will be required to apply for branch licence from RBI for all these existing branches of DCCBs within three months from the date of amalgamation. The StCB shall also seek prior approval of RBI for shifting of branches and opening of any new place of business including controlling offices. The granting of permission by RBI for shifting of branches/ opening of any new place of business shall be in accordance with the extant guidelines.
  13. DICGC clearance for the amalgamation shall be obtained by the StCB before applying for final approval.
  14. In case of divergence in interest rates offered on deposits by the StCB and the amalgamating DCCBs, the StCB shall provide sufficient notice period to the customers of DCCBs to enable them to take a decision with regard to continuing their deposits with the amalgamating bank. Depositors deciding to discontinue their deposits within the aforesaid notice period will not be levied any penalty for such premature withdrawal
  15. RBI may prescribe any additional condition/s, as may be considered necessary.
  16. The proposals for amalgamation which meet the indicative benchmarks would be evaluated by NABARD and RBI on merits and would be subject to additional requirements/ conditions as deemed fit.

6. The assets and liabilities of the transferor DCCBs will be transferred to StCB on the date of the amalgamation as advised by Reserve Bank while according final approval for the amalgamation.

Post- amalgamation requirements

7. Post-amalgamation, the StCB will be required to take the following action:

  1. A compliance report with reference to the conditions of the final approval for amalgamation shall be submitted within the prescribed timeframe.
  2. Licences of the transferor banks shall be surrendered. Applications for issue of branch licences shall be made by StCB within the given time frame as per the conditions of amalgamation.
  3. Steps initiated by the authority / institution responsible for settlement of claims of the transferor banks and their members in respect of allotment of shares shall be indicated. Details of the list of pending claims and the time frame to settle such claims should also be indicated.

Disclosures

8. The amalgamated entity shall make disclosures in its first annual accounts post- amalgamation as mentioned below. These disclosures shall continue in the subsequent annual accounts till they are resolved/ closed with concurrence of the Statutory Auditors:

  1. Pension liabilities pre and post-amalgamation. The methodology of valuation/ re-valuation of the pension liabilities shall be disclosed with details of the increase/ reduction in liabilities as a result of change in pension scheme, if any. This disclosure shall capture details of changes, if any, in pension schemes that are made applicable to the employees of amalgamating banks/ amalgamated bank.
  2. Status of vigilance cases and complaints pending in the amalgamating banks as on the date of amalgamation and details of cases that are closed during the year.
  3. Status of pending fraud cases, outstanding inter-bank adjustments (amalgamating/amalgamated) and inter-branch accounts and other intermediary accounts post–merger and their impact on the financial statements of the amalgamated bank.
  4. Outstanding claims of the amalgamating banks and their members in respect of allotment of shares and time frame for settlement of such claims.
  5. Such additional disclosures that may be required by the regulator/ supervisor

Yours faithfully

(Neeraj Nigam)
Chief General Manager in Charge


Annex

Documents to be furnished to the RBI and NABARD along with the Proposal

I. Documents to comply with the Regulatory requirements:

a) Feasibility Study.

b) Formal approval of the State Government.

c) Draft Scheme of Amalgamation along with duly certified resolution passed by the shareholders.

II. Managerial and Governance:

a) Copies of the notices of every meeting of the shareholders called for such approval together with newspaper cuttings evidencing that notices of the meetings were published in newspapers at least once a week for three consecutive weeks in two newspapers circulating in the locality or localities in which the registered offices of the banks are situated and that one of the newspapers was in a language commonly understood in the locality or localities.

b) Certificates signed by each of the officers presiding at the meeting of shareholders certifying the following

  1. A copy of the resolution passed at the meeting;
  2. The number of shareholders present at the meeting
  3. The number of shareholders who voted in favour of the resolution and the aggregate value of the shares held by them
  4. The number of shareholders who voted against the resolution and the aggregate value of the shares held by them
  5. The number of shareholders whose votes were declared as invalid and the aggregate value of the shares held by them
  6. The names of shareholders who have given notice in writing to the Presiding Officer that they dissented from the scheme of amalgamation together with the number of shares held by each of them.

c) Proposed governance reforms enabling professional governance/ management in the amalgamated bank.

III. Financials:

a) Audited Financial position of all the banks proposed to be amalgamated for preceding two financial years.

b) Financial structure of the amalgamated entity post-merger.

c) Areas of operational synergies and cost management.

d) Due-diligence Report (DDR) from Chartered Accountants, which may generally include:

  1. Scope/Mandate of DDR
  2. Sources of information used and limitations, if any, due to incomplete/not available data/information
  3. Nature of business being undertaken including Foreign Exchange Business such as Authorized Dealer (Category 1 or 2), Bharat Bill Payment system (BBPS), Electronic Banking Channels etc.
  4. Share capital and share holding pattern
  5. Management structure and organisational chart of holding Membership
  6. Accounting policies/practices and software in use
  7. Agreements, contracts and insurance in place
  8. Legal cases – by and against the bank
  9. Statutory liability assessment and compliance (IT, PF, TDS, etc); penalty imposed if any
  10. Liability particulars (deposits, to staff, others) and contingent liabilities details
  11. Asset particulars along with its actual IRAC status as per RBI guidelines/ fixed assets-valuation method, other assets
  12. Contra items
  13. Off balance sheet items and contingent liabilities, if any
  14. Review of net assets and net liability including realisable value
  15. Independent study of assets and pointers on erosion in assets, under provisioning (e.g. on gratuity, leave encashment, income tax, depreciation, stamp duty, etc.), understatement of liability (e.g. non-recognition of interest liability on matured term deposits, etc.) and factoring these into net worth calculation
  16. Non-banking assets, if any
  17. Net worth statement
  18. Details of property owned and leased with market value.
  19. Loans etc. to Directors
  20. Any signs of possible frauds or financial malfeasance.

e) Report of the valuers appointed for determination of the swap ratio.

IV. Disclosures:

  1. Pension liabilities pre-amalgamation. The methodology of valuation/ re-valuation of the pension liabilities shall be disclosed with details of the increase/ reduction in liabilities as a result of change in pension scheme, if any. This disclosure shall capture details of changes, if any, in pension schemes that will be made applicable to the employees of amalgamating banks/ amalgamated bank.
  2. Status of vigilance cases and complaints pending in the amalgamating banks as on the date of application/proposal.
  3. Status of pending fraud cases, outstanding inter-bank adjustments and inter-branch accounts and other intermediary accounts pre–merger.

V. Other Documents:

Additional information relevant for the consideration of the scheme of amalgamation.

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furnishing of credit information

RBI has vide its circular dated 12th March, 2021 asked banks, financial institutions, NBFCs, co-operative banks to report on loans which were restructured due to the covid-19 pandemic.

This information is given by banks etc. to Credit Information Companies to enable proper data capturing by these data companies. The gist of the circular is given below:

2. The Uniform Credit Reporting Format has two Annexes. The Annex-I contains two formats for credit reporting, viz., Consumer Bureau and Commercial Bureau, whereas Annex-II contains credit reporting format for Micro Finance Institution (MFI) segment.

3. It has now been decided to modify the aforesaid three formats as under:

(i) Consumer Bureau: The label of the field ‘Written off and Settled status’ is modified as ‘Credit Facility Status’ and it will also have a new catalogue value, viz., ‘Restructured due to COVID-19’.

(ii) Commercial Bureau: The existing field ‘Major reasons for restructuring’ will have a new catalogue value, viz., ‘Restructured due to COVID-19’.

(iii) MFI Bureau: The existing field ‘Account status’ will have a new catalogue value, viz., ‘Restructured due to COVID-19’.

4. The modifications are being made to enable banks/AIFIs/NBFCs to report the information relating to restructured loans to CICs as envisaged in circular DOR.No.BP.BC.3/21.04.048/2020-21 dated August 6, 2020, on the Resolution Framework for COVID-19 related stress.

5. Banks/AIFIs/NBFCs should make necessary modification to their systems and commence reporting the above information to CICs within two months from the date of this circular. CICs shall make necessary modifications to their system to reflect the above changes.

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loans to directors of co-op banks banned

Extensive circular issued by RBI banning loans by primary urban co-operative banks to directors, their relatives, the companies/firms/ concerns in which they or their relatives are interested in. Directors/ relatives cannot also stand as surety/ guarantor in respect of loans granted or any financial accommodation sanctioned by the UCBs. Detailed circular follows:

2. The Banking Regulation Act, 1949 (“the Act”) has been amended by the Banking Regulation (Amendment) Act, 2020 notified for the Primary (Urban) Co-operative Banks (UCBs) on September 29, 2020 and deemed to have been effective from June 29, 2020. Consequently, section 20 of the principal Act has become applicable to UCBs. Keeping in view the above, the extant directions on the subject issued to UCBs have been reviewed and the revised directions are issued as under.

3. UCBs shall not make, provide or renew any loans and advances or extend any other financial accommodation to or on behalf of their directors or their relatives, or to the firms / companies / concerns in which the directors or their relatives are interested (collectively called as “director-related loans”). Further, the directors or their relatives or the firms / companies / concerns in which the directors or their relatives are interested shall also not stand as surety/guarantor to the loans and advances or any other financial accommodation sanctioned by UCBs. ‘Advances’ for the purpose shall include all types of funded / working capital limits such as cash credits, overdrafts, credit cards, etc.

4. The following categories of director-related loans shall, however, be excluded from “loans and advances” for the purpose of these directions:

  1. Regular employee-related loans to staff directors, if any, on the Boards of UCBs;
  2. Normal loans, as applicable to members, to the directors on the Boards of Salary Earners’ UCBs;
  3. Normal employee-related loans to Managing Directors / Chief Executive Officers of UCBs;
  4. Loans to directors or their relatives against Government Securities, Fixed Deposits and Life Insurance Policies standing in their own name.

Explanation: For the purpose of these directions –

i. The term ‘any other financial accommodation’ shall include funded and non-funded credit limits and underwritings and similar commitments, as under:

  1. The funded limits shall include loans and advances by way of bill/cheque 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. It shall also include investments which are in the nature of / in lieu of credit.
  2. The non-funded limits shall include letters of credit, guarantees other than those referred to in paragraph (a) above, underwritings and similar commitments. It shall also include off-balance sheet exposure in the form of derivatives.

ii. The word “relative” shall have the meaning as under:

A person shall be deemed to be a relative of another, if and only if:-

a) They are members of a Hindu Undivided Family; or

b) They are husband and wife; or

c) The one is related to the other (or vice-versa) in the manner indicated below:

  1. Father (including step-father)
  2. Mother (including step-mother)
  3. Son (including step-son)
  4. Son’s wife
  5. Daughter (including step-daughter)
  6. Daughter’s husband
  7. Brother (including step-brother)
  8. Brother’s wife
  9. Sister (including step-sister)
  10. Sister’s husband

iii. The word “interested” shall mean the director of the UCB or his relative, as the case may be, being a director, managing agent, manager, employee, proprietor, partner, coparcener or guarantor, as the case may be, of the firm / company / concern (including HUF):

Provided that a director of a UCB or his relative shall also be deemed to be interested in a company, being the subsidiary or holding company, if he/she is a director, managing agent, manager, employee or guarantor of the respective holding or subsidiary company:

Provided further that a director of a UCB shall also be deemed to be interested in a company/firm if he/she holds substantial interest in or is in control of the company/firm or in a company, being the subsidiary or holding company, if he/she holds substantial interest in or is in control of the respective holding or subsidiary company:

Provided further that a relative of a director of a UCB shall also be deemed to be interested in a company/firm if he/she is a major shareholder or is in control of the company/firm or in a company, being the subsidiary or holding company, if he/she is a major shareholder or is in control of the respective holding or subsidiary company:

iv. The term “substantial interest” shall have the same meaning as assigned to it in section 5(ne) of the Banking Regulation Act, 1949.

v. The term “control” shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in another manner.

vi. The term “major shareholder” shall mean a person holding 10% or more of the paid up share capital.

5. UCBs shall submit information pertaining to their director-related loans as at the end of each quarter (i.e. 31 March, 30 June, 30 September and 31 December), in the format given in the Annex to these directions, to the concerned Regional Office of Department of Supervision of Reserve Bank of India within fifteen days from the end of the respective quarter. In the case of UCBs functioning under Administrator(s) / Person(s)-in-Charge / Special Officers, the UCBs concerned should submit the information in respect of loans and advances availed by the Administrator(s) / Person(s)-in-Charge / Special Officers, including their relatives.

6. These directions supersede the earlier directives / instructions issued on the subject and shall come into force immediately. The existing director-related loans sanctioned/granted by UCBs in terms of the earlier directives / instructions prior to the issue of this circular, if any, may continue till their respective maturity and shall not be renewed further.

7. A copy of this circular should be placed before the Board of Directors of your bank in its ensuing meeting and a confirmation thereof should be sent to the concerned Regional Office of the Department of Supervision of Reserve Bank of India.

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extension of time to file returns – co-operative banks

RBI circular dated october 13, 2020 allowing central co-operative banks and state co-operative banks to file their returns including their balance sheet & profit and loss account for financial year ended 31st march, 2020 by 31st december, 2020

Submission of returns under Section 31 (read with section 56) of the Banking Regulation Act, 1949 – Extension of time

Please refer to our circular DoR (PCB).BPD.Cir.No.2/12.05.001/2020-21 dated August 26, 2020 issued to all Primary (Urban) Co-operative Banks (UCBs) extending the period prescribed for submission of returns under Section 31 (read with Section 56) of the Banking Regulation Act, 1949 [as amended by the Banking Regulation (Amendment) Ordinance, 2020] for the financial year ended on March 31, 2020 by another three months, till September 30, 2020.

2. In view of the difficulties faced by UCBs in finalizing the financial statements amidst the COVID-19 pandemic, Government of India, on the recommendation of the Reserve Bank, has issued a Gazette Notification No. S.O. 3377(E) dated September 29, 2020 (copy enclosed) declaring that the provisions of Section 31 read with clause (t) of Section 56 of the Act shall not apply to Primary Co-operative Banks till December 31, 2020. Accordingly, all UCBs shall ensure submission of the aforesaid returns to the Reserve Bank on or before December 31, 2020.

3. Since the Banking Regulation (Amendment) Act, 2020 has not been notified for the State Co-operative Banks and Central Co-operative Banks as yet, they are required to furnish three copies of accounts and balance sheet together with auditor’s report as returns to the Reserve Bank and the National Bank (NABARD), in terms of Section 31 read with Section 56 (t) of BR Act, within six months from the end of the period to which they refer, i.e., by September 30, 2020 for the financial year 2019-20. However, taking into account the difficulties being faced by the State Co-operative Banks and Central Co-operative Banks due to the ongoing COVID-19 pandemic, the Reserve Bank hereby extends the period for furnishing of the returns under Section 31 of the Act for the financial year ended on March 31, 2020 by a further period of three months in terms of the first proviso to the above section. Accordingly, all State Co-operative Banks and Central Co-operative Banks shall ensure submission of the aforesaid returns to the Reserve Bank and NABARD on or before December 31, 2020.

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interest subvention scheme for MSMEs

RBI circular dated 7th October, 2020 which is self explanatory. More reliefs given to interest subvention scheme for MSMEs by co-operative banks. Gist of circular is given below:

Government of India, Ministry of Micro, Small and Medium Enterprises (MSMEs) had announced the ‘Interest Subvention Scheme for MSMEs 2018’ on November 2, 2018 for Scheduled Commercial Banks. A copy of the salient features and operational guidelines for implementation of the Scheme released by the Ministry of MSMEs is given below. Government of India has since decided to include Co-operative Banks also as Eligible Lending Institutions effective from March 3, 2020.

2. The scheme provides for an interest relief of two per cent per annum to eligible MSMEs on their outstanding fresh/incremental term loan/working capital during the period of its validity. The coverage of the Scheme is limited to all term loans / working capital to the extent of ₹100 lakh. The loan accounts on the date of filing claim should not have been declared as NPA as per the extant guidelines in force. No interest subvention shall be admissible for any period during which the account remains NPA.

3. The aforesaid operational guidelines for the Scheme (para 2.1, 2.2 and 2.4 of the enclosed Scheme) have been further modified by the Government as under:

  1. The validity of the scheme has been extended till March 31, 2021. Accordingly, fresh or incremental term loan / working capital limit extended by co-operative banks with effect from March 3, 2020 will be eligible for coverage under the scheme.
  2. Acceptance of claims in multiple lots for a given half-year by eligible institutions is permitted.
  3. Requirement of Udyog Aadhaar Number (UAN) may be dispensed with for units eligible for GST. Units not required to obtain GST may either submit Income Tax Permanent Account Number (PAN) or their loan account must be categorized as MSME by the concerned bank.
  4. Trading activities have also been allowed to be covered under the scheme without UAN.

Accordingly, the enclosed Scheme should be read in conjunction with the above modifications.

4. Small Industries Development Bank of India (SIDBI) is the single national level nodal implementation agency for the scheme. Nodal office of eligible lending institutions should submit their half yearly claims to SIDBI in the enclosed formats as per the guidelines for claim submission provided in the scheme.

5. Co-operative Banks may take appropriate action as envisaged in the aforesaid operational guidelines and issue necessary instructions to their branches / controlling offices for successful implementation of the scheme.

Interest Subvention Scheme for MSMEs, 2018

1. Background:

The Micro, Small and Medium Enterprises [MSME] sector is a significant contributor towards building up of a strong and stable national economy. Hon’ble Prime Minister while launching outreach initiative for MSME sector on November 2nd, 2018 highlighted that access to credit, access to market, technology upgradation, ease of doing business and a sense of security for employees are five key aspects for facilitating MSME sector. Twelve announcements have been made to address each of these five categories. As part of access to credit, Prime Minister announced 2% interest subvention for all GST registered MSMEs, on fresh or incremental loans.

Ministry of MSME (MoMSME) has decided that a new scheme viz. “Interest Subvention Scheme for Incremental credit to MSMEs 2018” will be implemented over 2018-19 and 2019-20*.

2. Salient Features of the Scheme

2.1 Purpose, Scope and Duration

The Scheme aims at encouraging both manufacturing and service enterprises to increase productivity and provides incentives to MSMEs for onboarding on GST platform which helps in formalization of economy, while reducing the cost of credit. The Scheme will be in operation for a period of two financial years FY 2019 and FY 2020*.

2.2 Eligibility for Coverage

(i) All MSMEs who meet the following criteria shall be eligible as beneficiaries under the Scheme:

  1. Valid Udyog Aadhaar Number [UAN]
  2. Valid GSTN Number

(ii) Incremental term loan or fresh term loan or incremental or fresh working capital extended during the current FY viz. from 2nd November 2018 and next FY* would be eligible for coverage.

(iii) The term loan or working capital should have been extended by Scheduled Commercial Banks.

* Since extended up to FY 2021

(iv) In order to ensure maximum coverage and outreach, all working capital or term loan would be eligible for coverage to the extent of ₹100 lakh only during the period of the Scheme.

(v) Wherever both the facilities working capital and term loan are extended to a MSME by an eligible institution, interest subvention would be made available for a maximum financial assistance of ₹100 lakh.

(vi) MSME exporters availing interest subvention for pre-shipment or post-shipment credit under Department of Commerce will not be eligible for assistance under Interest Subvention Scheme for Incremental credit to MSMEs 2018.

(vii) MSMEs already availing interest subvention under any of the Schemes of the State / Central Govt. will not be eligible under the proposed Scheme.

2.3 Operational formalities

  1. The interest relief will be calculated at two percentage points per annum (2% p.a.), on outstanding balance from time to time from the date of disbursal / drawal or the date of notification of this scheme, whichever is later, on the incremental or fresh amount of working capital sanctioned or incremental or new term loan disbursed by eligible institutions.
  2. The interest rates charged to MSMEs shall conform to Code of Ethics and Fair Practices Code as published by respective institutions (as per extant RBI guidelines) and linked to the respective internal / external rating of the MSME as per applicable interest rate guidelines of the institution.
  3. The loan accounts on the date of filing claim should not have been declared as NPA as per extant guidelines in force. No interest subvention shall be admissible for any period during which the account remains NPA.

2.4 Claim Submission

  1. Nodal office of eligible lending institutions should submit their half yearly claims to SIDBI as per the format given in Annex I. Information with respect to loans disbursed and interest relief claimed (branch-wise) shall be submitted in soft copy in excel in the format given in Annex II.
  2. The format for compilation of data by branches of eligible institutions is given in Annex III. The same may be submitted by the branches to their Controlling Offices / Head Offices.
  3. All claims have to be duly certified by the statutory auditors of the eligible institutions. The certificate shall include statement on verification of individual accounts with regard to amount, incremental / fresh lending, interest charged and amount claimed. Lending institutions shall ensure that total relief claimed as indicated in Annex III and III are matched.
  4. The Half Yearly claims shall be submitted to the Chief General Manager, Institutional Finance Vertical, SIDBI, Mumbai
  5. Disbursement against each claim to individual institution shall be only after release of funds from MoMSME.

2.5 Other covenants

  1. SIDBI shall act as a Nodal Agency for the purpose of channelizing of interest subvention to the various lending institutions through their Nodal office.
  2. All lending institutions shall be responsible for submission of the accurate data and monitoring of the scheme.
  3. The interest subvention would be released only on the basis of claim duly certified by the Statutory Auditors of the eligible institutions. SIDBI shall not be liable for any inaccurate submission of data by lending institutions.
  4. Interest subvention amount shall be released by SIDBI subject to availability of funds from GOI. Also, MoMSME, GOI will be the final authority for all interest subvention related matters and their decision would be final and binding. Receipt of funds by the eligible institutions would be treated as Utilization Certificate of the Fund.

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Reporting of large transactions

RBI circular dated 16th January, 2020 wherein they have streamlined the reporting of large exposures of Primary Urban Co-operative Banks having total assets of Rs.500 crores and above. Exposures to include all fund based, non fund based including investment exposure on the borrower. They have set up a three pronged strategy to report large exposures viz. exposure to large borrowers, reporting of technically/ prudentially written off accounts and reporting of balance in current account.

https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=11790&Mode=0

We draw your attention to RBI Circular DOR (PCB). BPD.Cir.No.7/13.05.000/2019-20 dated December 27, 2019 on “Reporting of Large Exposures to Central Repository of Information on Large Credits (CRILC) – UCBs“. In terms of the instructions, Primary (Urban) Co-operative Banks (UCBs) having total assets of ₹500 crore and above as on 31st March of the previous financial year (hereinafter referred to as “banks”) shall report credit information, including classification of an account as Special Mention Account (SMA), on all borrowers having aggregate exposures of ₹5 crore and above with them to Central Repository of Information on Large Credits (CRILC) maintained by the Reserve Bank. Aggregate exposure shall include all fund-based and non-fund based exposure, including investment exposure on the borrower.

2. The operational guidelines for reporting the CRILC– UCBs return are as follows:

i. The reporting frequency of the CRILC– UCBs return is quarterly to start with. The banks need to submit the data on large exposures within 30 days from the end of the quarter through XBRL reporting platform of RBI. Banks may put in place appropriate systems to be in readiness to submit the return on a more frequent periodicity.

ii. CRILC – UCBs return will comprise of three sections viz. Section 1: Exposure to Large Borrowers, Section 2: Reporting of Technically / Prudentially Written-off Accounts and Section 3: Reporting of Balance in Current Account, as below:

  1. In Section 1: Exposure to Large Borrowers, the bank needs to report the credit information of all borrowers having aggregate exposures (fund-based, non-fund based and investment exposure) of ₹5 crore and above.

  2. In Section 2: Reporting of Technically / Prudentially Written-off Accounts, the bank needs to report the data on the amount written off, if any, for borrowers whose technically/prudentially written off amount is ₹5 crore or more and which are not reported in Section 1.

  3. In Section 3: Reporting of balance in Current Account, the bank needs to report the data on Current Account holders whose (i) balance (either credit or debit) in current account as on reporting date is ₹1 crore and above or (ii) total of credit summation (sum of all credit transactions) during the reporting quarter is ₹5 crore and above or (iii) total of debit summation (sum of all debit transactions) during the reporting quarter is ₹5 crore and above.

iii. The detailed instructions for each Section is provided in the CRILC-UCBs return installer (macro enabled excel template).

iv. Banks are advised to take utmost care about data accuracy and integrity while submitting the data on large credits to the Reserve Bank of India, failing which penal action would be undertaken.

3. In the light of DoR instructions referred above and in exercise of the powers conferred under Section 27 (2) read with Section 56 (a)(i) of the Banking Regulation Act, 1949(AACS), you are advised to submit the data in CRILC-UCBs return with effect from the quarter ended December 31, 2019. The format of reporting is enclosed.

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Co-operative Banks

RBI circular dated 31st December, 2019 for restructuring the Board of Management of Urban Co-operative Banks, imperative in view of the increasing risk of frauds taking place in these banks.

Reserve Bank of India had released draft guidelines on constituting BoM in UCBs on June 25, 2018 inviting comments from banks and other stakeholders. Taking into consideration the responses received, it has been decided to issue the guidelines on BoM as per Annex I.

2. UCBs shall constitute a BoM by making suitable amendments in their bye-laws. The BoM shall comprise of persons with special knowledge and practical experience in banking to facilitate professional management and focused attention to the banking related activities of the UCBs through appropriate amendments to their bye-laws, in accordance with the enclosed guidelines following the due process. While constituting the BoM, the Board of Directors (BoD) of UCB shall carry out a process of due diligence to determine the suitability of the person for appointment as the member of the BoM, based upon qualification, expertise, track record, integrity and other ‘fit and proper’ criteria as set out in Appendix I. Similar process of due diligence shall be carried out for determining the suitability of a candidate for appointment as CEO. For this purpose, banks shall obtain declaration-cum-undertaking from the proposed member of BoM/CEO in the format enclosed to the guidelines in Appendix II. The process of due diligence shall also be undertaken at the time of renewal of appointment.

3. UCBs with deposit size of ₹100 crore and above shall constitute BoM which will also be a mandatory requirement for allowing such banks to expand their area of operation and open new branches. UCBs with a deposit size less than ₹100 crore and Salary Earners’ Banks are exempted from constituting BoM. However, for having good governance practices, such banks may also constitute BoM, if they so desire.

4. Further, as per the guidelines, UCBs having deposit size of ₹100 crore and above shall obtain prior approval of Reserve Bank for appointment of CEO. In this connection, it is advised that Scheduled UCBs shall approach the Department of Regulation of Reserve Bank for approval at least three months prior to the end of tenure of the incumbent CEO. The banks shall submit the proposal for appointment of CEO along with the declaration-cum -undertaking of the CEO designate as per Appendix II of these guidelines along with the list of supporting documents as given in Annex II. Non-Scheduled UCBs shall approach the concerned Regional Office of the Department of Supervision for the requisite approval in the similar manner mentioned above. Reserve Bank reserves the right to seek additional information/documents, if deemed necessary.

5. A copy of the amended bye-laws providing for constitution of BoM shall be forwarded to the concerned Regional Office of the Department of Supervision for information and record along with details of the members of BoM immediately after constitution of BoM. UCBs shall also be required to submit an annual return furnishing details of the members of the BoM as per the format given in Annex III as on December 31 each year, within 15 days of the end of the period to the respective Regional Offices of the Reserve Bank of India.

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