Confronting challenges of cooperative banking sector by strengthening through good governance management [www.writekraft.com]

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CONFRONTING
CHALLENGES OF
COOPERATIVE
BANKING SECTOR
BY
STRENGTHENING
THROUGH GOOD
(Regd. No. AAI-1261)
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GOVERNANCE
MANAGEMENT
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ABSTRACT
India adopted a liberalized deregulated economic policy since 1990-91, and new era of
globalization of activities in respect of trade and commerce, finance and management
commenced. It has resulted into the flow of foreign investment, multinational trade and openness
of Indian market, industry in a very big way. These salient features of policy stimulated the
growth of Indian economy.
In banking sector there was emergence of new private sector banks, entry of new foreign banks,
opening of offices of multinational financial giants. Thus the financial, banking sector underwent
a sea change in India.
This has necessitated the stricter compliance of national, international legislation regulatory
norms of the respective countries and there by introduction and implementation of full proof
good governance policy and professional management amongst Indian financial, banking and
corporate sector to protect the interest of stakeholders, depositors, consumers, investors and other
related and for development of country.
At international level due to failures of high profile corporate like Enron, World com, HIH
Insurance group, China, Aviation OIL, Paramalt in the countries like Europe, Australia Water
gate scandal in USA ,Sub prime lending crises caught US banking business UBS worlds one of
the largest bank was biggest losers in the sub prime case.
Similarly Nigeria lost almost 75 banks since 1914 primarily because of factors related to poor
governance, and bad management by board of directors .In case of Pakistan frauds and financial
scam in Bank of credit and commerce international [BCCI] and Mehran bank scandals occurred
due to involvement of banks in anti social activities, and money laundering acts. Central bank of
Bangladesh is very weak in effective monitoring as central authority which has resulted into
wide spared .corruption in banking sector
Governance is almost at no existence level. Early 2000 massive bankruptcies and criminal
offences of Enron Power World Com Layman Brothers and scandals in other corporate created a
heat of political interest across the world. Poor governance is acknowledged as an important
cause of recent East Asian financial crisis of 1997.Many industrial houses were collapsed in
U.K. during 1980. With cases like I.B.M. Kodak ,Honeywell.
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Cadbury committee report in U.K .the combined code of London stock exchange, The Blue
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Ribbon committee appointed by United states securities and exchange commission, OPCD code
of 1998 jointly with World Bank developed benchmarks in the corporate governance which
qualify as best practices under the standard and codes identified by Financial stability forum
which has consolidated all the deliberation and debate in the last twenty years.
The Sarba Oxley Act in the USA in July 2002 and Euro shareholders corporate governance
guidelines 2000 has recommended timely and reliable public disclosure of financial statements,
audit remarks, in the annual report of the company.
East Asian crises attributed to poor governance and collapse of many banks and corporate in
Thailand Malaysia, South Korea,,and Indonesia. U.S. recessionary period of 2008,sub prime
lending episode which adversely affected the U.S. economy and financial markets and U.S.
banking sector.
However Indian banking sector was strong enough to protect itself and absorb the shock because
of strong measures by Reserve bank of India regulator of banking ,financial sector of country.
Study reveled that all big corporate involved in scandals and mismanagement had a financial
support from banks which has resulted into failure of banks due to overlooking, non detecting the
affairs of the company.
On this background corporate governance topic has attracted worldwide attention of all the
stakeholders i.e .shareholders, depositors, creditors ,investors, and general public at large. Good
corporate governance in banking sector has emerged with greater importance as global banking
has become very complex in nature .
In case of India corporate governance in Indian companies assumed greater importance in recent
past .as it was found that despite the companies act specifying the elements of governance such
as boards authority, responsibility, accountability, penalty for violation of company act, rule, due
to growth of financial markets, multinational trade, and business under WTO. and change from
company to corporate world in India it was felt necessary to prepare comprehensive code of
corporate governance. The Indian companies were among the first in the corporate sector to take
initiative for ensuring corporate governance.
The Confederation of Indian Industry [CII] formulated code of desirable corporate governance in
April 1988 Associated chamber of commerce and industry [ASSOCHAM].By taking the points
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of recommendations of Cadbury committee Securities Board of Exchange India [SEBI]
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appointed committee under the chairmanship of Kumarmangalam Birla 1999.to prepare
voluntary code of corporate governance for the listed companies Accordingly the listed
companies with SEBI including banks whose share are listed at Bombay Stock Exchange
[BSE],National Stock Exchange [NSE] are obliged to comply with the recommendations of Birla
committee.
One of the important recommendation is disclosure of corporate governance philosophy, status
of compliance, transparency in information accounting standard and financial reporting in annual
reports of the company.
Ramakrishna commission report 1999 emphasized amongst other the need for autonomy in
professionalism of board of public sector undertakings ,financial companies, and banks etc. as
they are directly related to monetary business of the company Similarly CII, ASSOCHAM also
made separate studies on the role of board of directors and need to observe code of best
practices. Finance ministry of Govt. of India set up Nareshchandra committee to examine role of
Auditor ,independent director in ensuring governance. Similarly Narayan Murthy committee was
set up for recommendations of good corporate governance.
However all these committees were having common view for strong code of ethics including
having more non executive and preferably independent directors in the board and formation of
various committees like remuneration nomination, audit, investors grievances committees etc.
In short Indian corporate sector has to face challenges by following international trade practices
and international accounting standards with strong corporate governance philosophy and
disclosures in the reports for the knowledge of investors.
Corporate governance in Indian banking sector is recent development of a decade as after
banking reforms as per Narshivam committee report and Basel committee norms of 1999.
Banking sector in India is subject to stricter guidelines and financial parameters .
As per Basel committee recommendations banks have to display financial performance.
transparency, in balance sheet ,profit &loss account and compliance with other norms laid down
by section 49 of corporate governance rules..Annual reports should disclose accounting
standards norms ,ratio relating to profit, assets, gross NPA, net NPA, Movement of NPA,
Investment pattern, ownership pattern ,CRAR, etc. Statutory auditor of bank has to certify
compliance of corporate governance standard by banks.
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During the last two decades even government owned public sector banks has gradually reduced
its stake and these banks are getting corporatize with the stake of other financial institutions
Hence corporate governance issues assumes greater importance .In India since nationalization
process bank emerged as a tool of economic development along with social justice. Corporate
governance for banks has become very important to perform and remain in competition in the era
of liberalization and globalization.
Cooperative are also member driven organization including cooperatives banks hence the
recommendations of committees for Corporate are also applicable for Cooperatives as
cooperative enroll ordinary members ,work on democratic principles They serve their members,
depositors, borrowers who are also owners of cooperatives.
Cooperative governance is therefore about ensuing co-operative relevance and performance by
connecting to members, management employees in the decision making process. However
unfortunately as there is no formal system of governance in the co-operatives sector.
The area of corporate governance and professionalism of management in cooperative banking
sector has come into sharp focus in 2000-2001 on account of failure of few co-op banks in rural
and urban areas .resulting into serious problems, and loss of public confidence and threat to the
profile and identity of the entire cooperative system. and set back to the cooperative banking
sector .Serious irregularities, financial scams, mismanagement, by board of directors were most
common in the cooperative banking sector .
However there are lot of hurdles for good governance in Indian banking sector in general which
are discussed in relevant chapters. Like corporate governance the area of professionalism of
management is lagging behind.
In banking sector professional management implies dividing the ownership of the bank from
operational management of affairs of the bank. General body [shareholders], Board of directors,
Chief executive officer constitute three pillars of co-op bank. For effective management it is
required that role to be played by three are kept at a safe distant level.
However in cooperative banking the dividing line between these two is thin and majority
functions are overlapping each other .Due to undefined hierarchy position, level of delegation,
decision power is concentrated in few hands of the board. Unprofessional approach, lack of
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qualification of board members,
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political nexus, limited powers to CEO are hurdles of professionalism in co-op banking sector.
Management structure of co-op banks i.e. cadre, hierarchy system is not related to the size of
business. Organization structure is not standardized in relation to size ,growth, requirement of
business. Due to undefined hierarchy position level of delegation assigned to professional differ
from bank to bank leaving entire decision making power in few hands of board. Lack of
professional management is one of the areas of major concern about the urban co-op banks as
identified by RBI at present it is not at comfortable level.
RBI appointed various committees, study groups to suggest measures for the improvement in
working of co-op banks, governance, professionalism, accounting standard and financial
disclosures in annual reports etc and initiated action for implementations. Malegam committee
has strongly recommended the segregation of role of board of directors, members , professional
management, executives ,and powerful role of chief executive officer,
In case of financially weak and non viable banks all sorts of supervisory actions are being
exercised by RBI, such as ,issue of caution notice ,show cause, issue of directives ,moratorium.
appointment of administrator ,supersession of board of directors and conducting enquiry.
Merger, amalgamation, acquisition policy is being implemented for take over of weak ,nonviable
banks with/by financially strong co-op banks ,public sector banks before liquidation ,and
cancellation of banking license of such banks.
On the above background the study examines the role of central governments, state government,
regularity authorities i.e. Reserve bank of India ,state and central registrars of co-operatives
,recommendations of various committees, study groups, consequences of failures of governance
and professional management in urban co-op banks it present status.etc.
The study is finally concluded with recommendations measures, and suggestions for confronting
challenges of co-operative banking sector by strengthening the good governance and
professional management.
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FINDINGS, CONCLUSION
11.0 The findings of research study on ’’Confronting challenges of co-op banking sector by
strengthening through good governance, management’’ with the main aim to analyze the present
status of corporate governance in co-op banking sector on the background of governance
practices followed in Indian banking sector with following specific objectives.
1. The consequences of failure of corporate governance, professionalism in management in co-op
banking sector.
2. The need and measures for strengthening it for improvement of the sector.
On analyzing the primary and secondary research, the research study found some important
results which are submitted in respective chapter. In nutshell conclusions are as under.
.GOVERERNANCE PRACTICES FOLLOWED IN INDIAN BANKING SECTOR
[1] The corporate governance practices in the Indian banking sector have been effective to some
extent in achieving their set goals and objectives but there is still scope for further improvements
with more working disclosures and transparency in the reports.
[2] Corporate governance practices in Indian banking sector is though improved but it is still in
secondary stage as compared with developed countries of the world.
[3] Literature on the corporate governance practices followed in Indian banks is very scare as
compared to developed nations where it is studied in depth with reference to model, it success
failures and role of regulators, govts and stakeholders.
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[4] In terms of listing agreement, clause no 49 SEBI the banks and financial institutions whose
stocks, securities are listed with BSE,NSE it is mandatory requirement to have corporate
governance policy and statutory obligation to publish it through annual reports.
.
[5] SEBI guidelines has made certain mandatory and non mandatory disclosures for publication
in annual reports. along with the disclosures of RBI and under provisions of the Companies act.
[6] Because of the above measures (4 and 5) Commercial banks have framed the Corporate
Governance Philosophy, Code of ethics, for Board of Directors and Sr. Management. and publish
the same in their annual reports.
[7] Contents and disclosures in annual reports by Pub. Sector banks are informative, transparent,
with all statutory disclosures as prescribed by SEBI,RBI, and Company act.
[8] Reporting and disclosures in annual reports by Pvt. Sector banks has edge over the others
particularly in respect non mandatory/ voluntary disclosures on the performance of the bank.
[9] Reports contains the profile of the members of board, name, age, educational, professional
qualifications, experience, expertise, in the field and any office of profit or interest of directors
held in other company etc. is disclosed.
[10] Constitution of various sub committees of board its scope, functions, no of meetings held,
attendance of members to meetings, and its decisions are disclosed.
[11] Approach to take into confidence to all the stake holders, investors for adoption of
resolutions in the annual general meeting.
[12] Auditors certificate on the compliance of corporate governance by and code of ethics by Sr.
management is published.
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This has resulted into corp. govn. practices, procedures applied in Indian banking sector to
certain extent effective though it was started in late 1990s. Even though all the international code
of corp. govn. principles are not completely followed CII code and mandatory clauses 49 of
listing agreement of SEBI are followed to enhance good governance.
However failure of Global Trust Bank (GTB), financial irregularities in Bank of Karad, United
Western Bank Satara, ownership stake and control issues by families in Bank of Rajasthan,
violation of regulatory norms on loans and advances by new generation banks like Bank of
Punjab and few others brings the darker side of governance practiced and role of RBI to
supervise and monitor the functioning of Management of these banks.
In view of the above it is essential to attribute significant importance to qualitative standards of
governance such as check and balances, internal control, and risk management strategy,
disclosure standard and more transparency in reporting to stakeholders to prevent financial
scams.
The board of public sector banks and private sector banks were not made accountable for the
financial irregularities in the bank. No enquiries are conducted against directors involved in the
scam where as executives, managers are made accountable and liable for disciplinary action and
severe punishment is awarded .
11.1. SUGGESTIONS- SCOPE OF DISCLOSURE
[1] Deployment of banks fund by way of loans and advances is main area of concerns. Effective
credit monitoring is required not only to prevent the slippage of assets quality, but to prevent the
strain on banks earning, profitability, as NPA requires provisioning out of profit of the bank.
Though management, board committees of the banks takes review of asset quality of the bank
annual report should contain additional disclosures on this areas of concern as high percentage of
NPAs has crippled the banking, economic growth of the country.
It is suggested that banks should disclose about their corporate advances policy, group exposure,
asset quality of associated companies, consortium lending to business houses, risk weight
associated to such advances by bank. similarly the position of restructured advances, legal action
initiated for recovery, pending litigations with DRT. And segment wise percentage of NPA of
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advances.
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Many corporate are involved in money laundering cases. Though anti money laundering
mechanism is in place in banking sector and reporting of suspicious, cash transactions reports to
FIUINDIA New Delhi banks failed to curb these activities by way of either diversion of funds or
use of banking channel against the national interest.
Satyam Computers,2 G Spactrum, Coalgate and many more such scams where there was nexus
of politicians and corporate world. Banks were lender for corporate by ways of funded and non
funded finance, bank guarantee, financial accommodation for securing contracts, bides, auction
process. Huge financial crunch of King Fisher Airlines and turning of advances in to loss assets
has adversely affected the quarterly results of SBI and other banks and stake holders.
RBI Dy. Governor K. C. Chakrabarty made following statement while addressing in
ASSOCHAM event in New Delhi on 21
st
November 2012.
‘’ The corporate sector is responsible for a major part of the rising bad loans causing
inconvenience to honest borrowers .NPA( non performing assets) is a creation of corporate
sector……you borrow from the banks and you don’t pay in time .They become NPAs in the
books of the banks.‘
Mr. Chakrabarty further said that there is a need for good governance and good growth in India
We are all victims of 2G, Growth, and Governance……..
It may be noted that regulatory authority strongly endorsed my above stated views on corporate
disclosure and its importance for economic growth of the country.
It is therefore suggested that banks should have specific disclosures on such cases which is
widely discussed in media, press and on political fronts. The banks has to develop their own in
house system to supplement the regulatory supervisory system.
SEBI, RBI should tighten the disclosures norms further in view of various financial scams that
has rocked the country and national interest of the stakeholders.RBI has to play more effective
role for implementation of recommendations of various committees on corporate governance.
Indian stake holders have to play a equally effective role by forming a strong forum and raise
their voice to protect their interest on the non disclosers of certain facts by banks in their reports.
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.
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11.2 STATUS OF CORPORATE GOVERANCE IN CO-OP BANKING SECTOR
[1] Corporate governance philosophy, practice is not framed, and governance practices are not
followed and even if is not disclosed in the annual reports irrespective of status of the bank
[primary, scheduled, multistate], volume of business size, multistate operations. As it is not the
mandatory provision by regulatory authorities.
[2] Code of conduct for board of directors, senior management is not framed and even if so not
disclosed in annual reports irrespective of the status of the bank [primary, scheduled, multistate]
volume of business size, multi state operations. As it is not the mandatory provisions by
regulatory authorities.
.
[3] The text of annual reports are typically framed, contents of reports are more of a routine
nature without out any depth of factual, fair, transparent reporting about the working affairs,
performance of the bank.
[4] Annual reports of many banks does not have a single line on the corporate governance
practices followed by banks and few banks statement is very limited extent covering the
meetings.
[5] Means of communications to stakeholders is not developed it is limited and restricted to
annual report. websites are not updated.
[6] Various accounting disclosures as specified by RBI, and adherence of accounting standard
principles as issued by ICAI are generally followed due to mandatory provisions but with
qualifying remarks by statutory auditor.
.
[7] Duality of control, lack of good governance practices, ethics, and professional management
are attributed for mismanagement, failure of co-op banks and hurdles for main hurdles for the
growth of the sector.

[8] It may be mentioned here that one or two co-op banks have voluntarily taken initiative
towards adoption of governance policy, code of conduct for board and management
.
[9] Level of governance and disclosure in the co-op banking sector is below average as
compared with public ,private. sector banks.
[10]Cooperatives are lagging behind in respect of effective participation by stake holders in
working of the bank.
[11] Lack of professionalism in management is one of the areas of major concern identified by
RBI At present it is not at comfortable level.
.
11.3 CONSEQUENCES OF FAILUREOF
GOVERANCE, PROFESSIONAL MANAGEMENT
[1] In the year 1988-89 RBI awarded ‘’Scheduled Status ‘to 11 primary well managed UCBs by
inclusion in the II nd schedule of RBI Act1934 upgrading functions of such banks at par with
commercial banks. These banks were expected to perform with more accountability and
responsibility in terms of carrying out business of the bank.
Similarly few large scheduled banks spread their wings across the boundaries of the state by
attaining Multi State status under registration of Multi State co-op scty act. As of 31/3/2013 out
of 1606 co-op banks there are 43 multi state banks and 55 scheduled co-op banks.
As of 31/3/2013, 111 UCBs got merged with other good banks under merger, acquisition policy
of RBI. These banks were having negative net worth ,accumulated huge losses, high NPA,
erosion of assets, capital, involved in fraud, misappropriation, financial scams, action against the
board by registrar, supersession of board, appointment of administrator, banks under RBI
directives etc. Over 10 to 12 are unviable UCBs.
[2] It was observed that functioning of scheduled urban co-op banks received a big jolt due to
collapse of large scheduled banks in Gujarat and Maharashtra. i.e. Madhavapura Mercantile co-

op bank ltd, Ahmadabad co-op bank ltd, Rupee co-op bank ltd, Charminar co-op bank ltd. and
others like Visanagar Nagarik Sahakari Bank Ltd, Krishi co-op bank, Suvarna Sahakari Bank,.
Recently Pen urban co-op bank, and such others.
In spite of statutory audit by state Registrar, regular on site and off site inspection by RBI, and it
was felt that all is not well with Urban bank sector as it appears from the routine reports.
Over the years many medium and small size banks failed due to cascading effects as these banks
were stake holder in various forms such as clearing, remittance facilities, funded and non funded
accommodation on behalf of their constituents, placement of call deposits etc. with the banks
which were collapsed.
Business cliental of different states also suffered due multi state bank operations. There were run
on the banks from the depositors for withdrawal of deposits. Many depositors lost their hard
earned money as many bank did not renew insurance with DICGC, and hence depositors claims
could not be settled.
This has resulted into loss of creditability of co-op banking sector in the eyes of general public,
members, stakeholders, and shaken the confidence of depositors.
These are the classic cases where the corporate governance practices, and management failed
within the sector from both the sides.
11.4 MEASURES FOR STRENGTHING GOOD GOVERANCE,MANAGEMENT IN CO-OP
BANKING SECTOR
[1] It is high time that RBI should introduce the Corporate Governance Philosophy, Practices and
Code of ethics to co-operative banking sector. and make it mandatory to follow and publish in
annual reports of the bank.
[2] UCBs be advised to make amendment in their byelaws to this effect with the approval of
Annual General Meeting of members of the bank.
.
[3] Expert committee recommendation on the Model Bye Laws are approved by all state govts.
And necessary amendments are carried out in respective state co-op scty .act. and model bye-

laws of urban co-op bank. However it is suggested that registrar may incorporate separate section
on corporate governance in the model bye laws.
[4] With a view to improving the financial soundness of UCBs sector and revival of sick UCBs
the RBI has entered MOU with all state govts. since 2005. RBI may make regulatory
arrangement to enforce these practices by incorporating separate clause in the MOU and execute
with state. govt. representative. TAFCUB should take lead for its implementation through Urban
bank state level and national level federations.
[5] The scope of financial disclosures, accounting standard and principles should be enlarged
other than the existing one issued by ICAI and disclosures of the RBI. The group exposures, and
loans and advances to associated firms, companies, Quality of assets, Investments of the bank,
deposits kept with other banks for business tie up arrangement.
[6] The profile of the members of the board which includes their full name, age, educational,
professional qualification ,category under which he /she got elected to board [Open, Reserved
S.C. S.T,O.B.C N.B.T ,Women.] Any unfilled vacancy in the constitution of board should be
indicated with the reason should be disclosed.
[7] Training and development programs imparted to the members of the board. Training on
economic & banking trend, RBI monetary policy, prudential norms, ,accounting standard and
practices. Financial statement, disclosures in reports, role ,responsibility and accountability of
board, various committees such as Alco, Audit, Investment, Risk management in various bank
operation.
[8] The text of the annual report should contain the transparency of working . Any critical matter
related to Management, Board of directors such as court litigations against banks, action by
regularity authorities like Registrar ,RBI, penalty imposed on the bank for violation of
guidelines, directives should be separately displayed in the report with the updated status of such
cases.

[9] As a part of prudent governance the various sub committees of the board should be chaired
by different members to avoid concentration of decisions. Chairman of the bank should not be
chairman of all the committees. This will also enforce the collective responsibility,
accountability, role, and participation of members in the working of the bank. This would
enhance the status of individual member.
[10] As a part of prudent governance there should be rotation of chairman, Vice chairman within
the tenure of five year period. Similarly all the members should be given an opportunity to work
on various committees of the board by rotation.
[11] The board and Management has to demonstrate accountability and responsibility to the
members, depositors, general public and other stakeholders Annual reports should contain the
factual position ,truthful and accurate disclosures and transparent reporting manner which are the
most essence of corporate governance. The co-operative banking sector should follow this
voluntarily to build up their image, confidence and credibility.
[12] RBI, NABARD should prevail upon govt. of India to bring suitable amendments in the state
co-op scty. act B. R .Act in respect of legal prohibition on the MLA, MLC, MP, Political leaders
for holding office of profit in central, public sector undertaking or directors of co-op banks
.Majority co-op banks are controlled by politicians or affiliated to political parties. Due to
political interference effective governance is not possible in UCBs.
[13] UCBs should formulate their Vision Mission document and Corporate philosophy for
protecting interest of their members, depositors, by adhering regularly norms, byelaws,
provisions of acts and upholding co-operative principles to maintain distinct identity of the co-
operatives .Code of ethics for board and top management.
[14] The philosophy document should clearly draw the lines for practicing the same.
.
[15] The co-operatives should strictly adhered to the provision of act, byelaws, procedure related
to their accountability towards members of the bank i.e. sending of notice of AGM, copy of

annual report, holding of AGM within stipulated time, clarification sought by members on the
annual reports, business and financial statement of the bank. Submission of desired documents
rightly fully called by member. Allowing members to participate in the meetings, clarify the
issues raised during the meetings. and adoption of various resolutions.
[16] Conducting of election of board in a democratic way within time as per tenure of board.
[17] Co-operatives banks are also governed under other acts such as Multi state co-op scty act,
[ In case of banks registered under multi state act.] B. R. Act, RBI Act, Rules and regulation of
Anti Money Laundering act,[AML], FIUINDIA act, as now banks are also offering various other
services like Pan card, Dmat, Insurance, provisions related to respective acts ,in SEBI IRDA also
made applicable to co-op banks.
[18] Bank should have a separate cell to redress the complaints of members, depositors, and
redressal mechanism system’ should be in place.
[19] Constitution of independent Loan scrutiny, ALCO, and Audit committee.
[20] Regulators, Registrar ,controlling authorities to keep strict vigil on the working of the bank
as general public, depositors, members strongly believe, support and relay in the views of
controlling authorities in case of any financial trouble in the bank. and become complacent about
corp. govn. issues but regulators relay on market discipline by the board of the bank.
[21] The composition of members in co-operatives requires to be changed. At present due to
linkage of share holding, majority members of the banks are large borrowers. They vote in
election, attend AGM but their interest is limited similarly different constituents of member have
different interest depending upon the nature of their relationship.
In few co-op banks member employees have a strong force to contest the election, AGM
proceeding. In another case community members rule the working of bank. Strictly speaking the
democratic principle of one member one vote is virtually controlled by such groups. where as
depositors members, financial members, small members participation is very limited. As a

results governance issue becomes more complicated between Board, Management and Members
of the bank
[22] Listing of co-op banks shares and trading in market, transferability and formation of joint
stock co-operatives may improve the composition of members and corporate control. and
improve the performance of the bank as financial the financial results are linked with market
prices of shares.
In many countries Block holders [large share holders] are dominant form of corp. govn. who
actively and continuously monitor working of organization. Small shareholders can relay on
these block holders to defend the interest of all the members.
[23] Role of auditors is very important in respect of drawing of financial statements such as
balance sheet, profit & loss with greater transparency. Co-op banks should adopt all disclosure
norms on the lines of disclosures by commercial banks in India.
RBI has advised RCS and State Govt. and ICAI that financial statements, balance sheet, and
profit &loss accounts should be prepared based on the prudential norms. and it is the
responsibility of statutory auditors, departmental auditors of co-op banks to look into the
compliance of these norms.
[24] Auditors should be well conversant with all aspects of the guidelines issued by RBI, ICAI
from time to time. and balance sheet, profit &loss account ,financial statements are prepared in a
transparent manner and reflect the true state of affairs.
All the provisions, statutory payments, tax liability, appropriation are properly drawn before
arriving at net profit and in terms of accountancy rule and act.
.
[25] UCBs should publish their audited half yearly financial statements balance sheet, profit
&loss account and abridged provisional statements on quarterly basis in news papers for the
information of general public. These financials should be duly approved in the board meeting
and foot note of the same should be given with date of meeting in the publication.
[26] RBI has introduced the rating model for UCBs.[Revised CAMELS] on the basis of
weighted average. from march 2008 by dispensing earlier grading system. A composite rating is

determined on ten point scale from A to D indicating increasing/decreasing order of performance
and increasing order of supervisory concerns.
The rating is more transparent averages D,C-,C.C+,B-,B,B+.A-,A, A+. with the weighted
average marks from below 45 to above 85. However on the basis of representation received from
co-op banks federation, association RBI introduced rating model of A B C D on the basis of
revised CAMELS weighted average marks by dispensing with earlier rating system.
[27] Rating is given after the on site inspection of banks. Prior to that Statutory Auditor awards
the audit class to the bank i.e. A B C D as applicable to bank which is published in the annual
reports.
After RBI inspection Inspecting officer [ I.O.] makes necessary corrections in the financials
particularly, NPA, Investment provisioning, reclassification of NPA, erosion in capital, other
assets of the bank and makes other observations on the basis of which profitability is affected
and the financials are different than what earlier certified by auditors and in such cases down
grade the bank. It happened that A audit class has been down graded to C – or B- by RBI after
the inspection.
However as per the existing rule RBI gradation is confidential and not to be disclosed by banks
in their reports. Ultimately depositor, general public remains in dark about the true affairs of the
banks. This is contrary to the principles of governance.RBI should allow UCBs to disclose
changes affected in the financials, profitability, and rating of the bank in their next annual report,
put it on website under separate head of disclosure and other communication channels of
depositors, members.
[28] Implementation of Malegam committee suggestions on Board of Directors [BOD] and
Board of Management [BOM], follow of corporate governance to be specified by RBI,
appointment of full time CEO.
[29] Structured and well defined professional management cadre and role of CEO to be more
powerful as against its present level.
.

[30] TAFCUB should prescribe vertical and horizontal structure of the bank depending upon the
size of the business ,branch network, area of operation.
[31] Co-op banks should disclose their single party and group exposures, consortium lending
,risk associated to such advances by bank.
[32] Bank should disclose the position of restructure advances, legal action initiated for recovery,
pending litigations with various courts ,forums and segments wise percentage of NPA of
advances.
[33] Bank should also disclose graphical composition of shareholding of the bank i.e
.individuals. ,proprietorship ,partnership ,private ltd.co. etc.
[34] Bank should disclose sector wise loans and advances, and over dues of the bank.
[35] The bank should develop their in house system to supplement supervisory regulatory
system.
[36] RBI should tighten the disclosure norms in view of the various financial scams in the co-op
banks.
[37] In the composition of board of directors representation should be given to depositors
members of the bank.
[38] The payment of dividend should be strictly linked to the average deposit rate of the banking
sector, profitability ratio of the bank. High rate of dividends should not be allowed.
[39] There should be separate regulator and separate legislative law for co-op banks as it is now
governed under co-op societies act.

[40] RBI should clearly define the role and responsibility of professional directors either elected
or co-opted with banking and finance expertise as it is observed that these appointments are
made merely to comply with mandatory provisions.
[41] The scope of statutory auditors appointed by register should be enlarged to cover the
working of board, management,, administration, complaints from stakeholders, depositors
against management.
[42] National, State level Federations, Associations, Forums, Unions of co-operatives can
collectively can play important role in this area through national seminars, conferances.etc
11.5 FINAL/ CONCLUDING NOTE
Effective implementation of corporate governance practices and professionalism in management
not only strengthen the working of the co-op banking sector but it will fetch the successful
results of the various financial reforms initiated by govt. Co-op sector will be strong enough for
confronting challenges and convert them into business opportunities in the complex financial
market and competitive banking in coming years.
It will enhance the confidence of stake holders, depositors, financial investors, and build image
of co-op banking sector.
Olivier Boned has rightly said that ‘’Annual reports are best tools for detailing and promoting
corporate governance with its strong specific features. Corporate governance needs to be
explained, developed and promoted. In other words I say that voluntary, approach initiatives by
co-operatives is necessary for developing, promoting and effectively enforcing the governance in
the organization and sharing of its success with all stake holders.
The success of vision documents lies in the voluntary implementation of governance principles
for which initiative should come from bank themselves and well known quoted statement about
the co-operatives i.e. ’’Co-operation has failed but Co-operation must Succeed’’ will be replaced
with ‘’Co-operatives Survived as Co-operative Governance has Succeeded’’ I hope my research
study is a sincere attempt and way towards the path of success in the International Year of Co-
operatives 2012.

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