In terms of powers conferred under Sections 10, 10B, 10BB, 35A, 35B, 36AA and 53A (read with Section 56) of the Banking Regulation Act, 1949 The issue of direction by RBI to UCBs relating to appointment/ reappointment/termination of appointment of MDs in UCBs vide circular no RBI/2021-22/60 DOR.GOV.REC.25/12.10.000/2021-22 dated June 25, 2021 has become a talking point in the UCB sector.
For the past several years, RBI has been insisting managements of UCBs to improve the system of governance by adopting professional management practices in the day to day affairs of the bank. Some UCBs consisting of highly intellectual management and professional directors on the boards, have adopted these best practices succeeded too. Many UCBs because of the lack of professionalism, have adopted professional management practices in bits and pieces resulting in limited success. Many UCBs, especially small sized UCBs are yet to improve the governance system in their respective banks. For these reasons and because of failure of several leading UCBs there is trust deficit of public in this sector. This is the reason for bringing more regulatory control over UCBs by amending Banking Regulation Act, 1949.Appointment/ reappointment/ termination of appointment of MDS in UCBs is one such amendment.
UCBs in India are heterogeneous in character. There are scheduled UCBs having hundreds of branches and thousands of crores of deposits. There also exists unit banks having deposits as low as 10 crores. The direction for appointment/ reappointment of MDs in UCBs is applicable to all UCBs irrespective of the size. A tiny unit bank having say Rs 15 crore deposits also will have an MD to manage the affairs of the bank. It is a fact that the MD may be called by what ever name; He may be even called Manager. But fact remains that he will be under the dual control of the Board of the UCB and RBI.
Under this heterogeneous environment in the UCB sector there is no option but to bring in uniform regulations in the interest of the banking system. Definitely there will be initial hiccups. But once the awareness dawns on the managements which may be a gradual process, MDs may feel at ease and start functioning. It has been nicely said in a FAQ that the post of MD is not a bed of roses