PROFESSIONALISATION OF MANAGEMENT IN URBAN COOPERATIVE BANKS

1. INTRODUCTION

The urban cooperative banks (UCBs) constitute an important segment of the Indian banking system.  They have an important role to play in mobilization of small savings and purveying of credit to the weaker sections of the society.  In the context of liberalization of the Indian financial sector, they have to meet new challenges and competition from other banks including those in the private sector as well as other constituents of the financial system.  It is, therefore, imperative for the primary cooperative banks to strengthen their financial structure, operational efficiency and profitability.  They will also have to provide a qualitatively better customer service to cope with the challenges.  All this requires skilled, dedicated and professionalised managements in the urban banks.

2. What is professionalised management?

The professionalised management implies divorcing of the ownership from the operational management of affairs of the bank.  Thus, while the ownership rests with the shareholders, the executive management of the day-to-day affairs of the bank rests with the professional managers.  The decisions are taken on the basis of corporate goals and objectives by application of expertise and scientific knowledge.  The Board of Directors, as trustees of the members will, however, continue to retain the control functions such as setting of corporate objectives, formulation of broad policies, monitoring of performances, etc.

3.  The pre-requisites of an effective management

The general body, the Board of Directors and the Executive constitute three wings of the management of an urban bank. It is essential for an effective management of the bank that the roles to be played by each of the three wings are kept distinct.  The expected role of these three wings may be summarized as follows:

1. i)                    General Body – The general body comprising of members of the bank is the supreme authority for adoption and amendment of by-laws of the bank and election of a competent Board of Management of the bank. The Executive and the Board are responsible to the general body.
2. ii)                  Board of Directors – The Board is responsible for setting the long term objectives and formulating policies and procedures for achieving those objectives. It has to regularly monitor the operations of the organization. It is also empowered to appoint the Chief Executive Officer and other important officers.  It is ultimately responsible for the operations of the bank.
3. iii)                Chief Executive Officer – He is the most important official in an UCB and is responsible for the day-to-day operations of the bank. He has to carry out the activities of the bank in accordance with the powers delegated to him and as per the policies laid down by the Board.  He acts as a liaison between the Board of Directors and the General body on the one hand and the employees on the other.  To be a professional manager, he should be well qualified and possess a profound knowledge of banking and human relations skills. As most of the directors may not be professionals he must be in a position to provide necessary guidance to the Board for formulating pragmatic policies. He should be a good leader to engender a sense of loyalty to the bank and team spirit among his employees for achieving the corporate goals.
   
   

4.  Professionalisation of Management in UCBs,and recruitment and training of personnel

Professional management in UCBs implies adoption of a strategy for strengthening the democratic framework for decision making process. This calls for:

1. Setting of realistic corporate goals and objectives for the management team.
2. Providing an organizational structure designed to achieve the corporate objectives.
3. Demarcation of the powers, duties and responsibilities of different members of the team.
4. Systematic and periodical evaluation of the performance of the organization and a machinery to take prompt corrective action, if necessary.
5. Adoption of a well defined personnel policy and performance appraisal system intended to reward good performance and motivate the people.
6. Continuous updating of the knowledge, skills and attitudes of the members of the management team through appropriate management development programmes.

Professionalism in the UCBs would require adherence by the Directors to the various Dos and Don’ts prescribed by the regulator which broadly includes the following:

A. The Directors of the UCBs should practice the following while overseeing the functioning of the bank: 

1. Discipline & Involvement in running the bank regularly and effectively
   1. Involves attending the board meeting regularly and effectively. It also requires the Directors to be aware of the various policy laid down by the Government and the Reserve Bank.
       
2. Constructive & Development Role requires the directors to provide a constructive direction to the bank and keep pace with the changes in the sector and economy. Further, he should foster a team spirit in the functioning of the bank.
   
   
3. The directors should bestow attention on the working of the bank with regard to compliance with monetary and credit policies of RBI / Government,   observance of cash reserve and statutory liquidity ratio,  efficient management of funds and improving profitability,    compliance with guidelines on income recognition, asset classification, provisioning towards non performing assets etc.

B.  However, in order to create a more professional environment the Directors should not indulge in interfering in the day-to-day functioning of the bank and involve themselves in the routine or every day business / management functions of the bank. They should not interfere / sponsor any business decision including sanction of loan proposal or involve themselves into matters relating to personal administration. Further they should maintain the confidentiality of the bank and should reveal details of bank’s agenda papers or of any constituent of the bank to entities not authorized to posses the information.

To sum up an UCBs would require the following aspects  in its organizational set up - right from the BoD to the personnel working at the base level – to upscale its professional culture: 

1. Corporate Objectives – While profitability and growth would be the common objectives for any organization, their quantification may differ from one bank to another. Mere definition of goals and objectives will not achieve anything unless a practical strategy to be adopted is also identified. Apart from considering the short term objectives, long term growth plans and manpower requirements also have to be decided. Thus, considerable thinking has to go into formulation of realistic corporate goals and development plans.
2. Organisation – It is necessary to have a definite organization structure indicating the lines of authority so that every one in the organization knows his relationship with the others in the organisation.
3. Demarcation of powers, duties and responsibilities – The powers, duties and responsibilities should be defined as precisely as possible so that each member of the team clearly knows the organisation's expectations of him and the extent of powers he can exercise in discharge of his responsibilities.
4. Monitoring of performance – The performance of the organization, implementation of the strategic plans and the performance of the managerial team should be regularly monitored by the Board of Directors or any other standing committee.
5. Personnel policy and performance appraisal – Every urban bank should formulate a comprehensive and transparent personnel policy.  It should cover the following aspects:

a) Management skills – The chief executive officers and other managerial staff should have a thorough knowledge of the various functional aspects within the prescribed regulatory and supervisory prescriptions.

Prepared by Shri C S Murthy - Revised by Shri , J K Pandey, Member of Faculty, CAB