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RBI limits tenure of MD & CEO / Whole-time Director

Negative development for KMB; remain watchful of RBK, FB, and DCB

* The Reserve Bank of India (RBI) in its circular today capped the tenure of the MD & CEO and Whole-time Director (WTD) positions at a) private lenders, b) SFBs, and c) wholly-owned subsidiaries of foreign banks for a maximum of 15 years. Additionally, for the Promoter MD & CEO position, it capped the maximum tenure at 12 years. However, for Promoter CEO – under extraordinary circumstances, at the sole discretion of the RBI – the term may be extended up to 15 years.

* The extension of the Promoter CEO’s term for an additional three years would depend on the level of progress and adherence to milestones for the dilution of promoter shareholding in the bank over the prior period.

* Transition period as per circular: These guidelines would be effective from Oct’21. However, current CEOs (both promoter/non-promoter) would be allowed to complete their terms, which were already approved by the RBI.

* Reappointment of existing MD/CEO or Whole-time Director after completion of 15-year tenure: This is permissible after a minimum cooling period of three years. During this cooling period, the MD & CEO shall not be associated with the bank or its group entities in any capacity, either directly or indirectly.

* No change in age limit: The upper limit for the MD & CEO / WTD of private sector banks is 70 years. Furthermore, the upper age limit for Non-Executive Director (including Chairperson of the Board) remains 75 years.

* Guidelines to help banks better plan successions: The key purpose of these guidelines is to further strengthen the governance standards within private sector banks. Also, we believe these guidelines would help the boards of directors better plan the successions at the banks, in line with RBI guidelines.

* Negative development for KMB; remain watchful of FB, DCB, RBK: The limit on the MD & CEO tenure has come as a negative development for Kotak Bank – Mr Uday Kotak would be ineligible for a further re-appointment after the expiration of his current term in Dec’23. Also, we remain watchful of the continuity of some other mid-sized private bank CEOs (such as RBL, FB, and DCB) – their current MDs/CEOs have already completed 10–12 year tenures and are thus eligible for an extension – although, the RBI only recently granted a year-long extension to the CEO of DCB Bank. In the case of BANDHAN/AUBANK, further clarity is needed on whether the RBI would consider the timeline after its conversion into a bank / SFB or before this period. On the other hand, Mr Kamakodi, MD & CEO of CUBK, can continue up to May’26 and is therefore eligible for a re-appointment in Apr’23.

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