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In a major reform step, the Reserve Bank of India (RBI) has capped the tenure of bank MD and CEOs with immediate effect.

In a circular to all the commercial banks on Monday, the RBI said that the posts of Managing Director (MD) and Chief Executive Officer (CEO) or Whole Time Director (WTD) cannot be held for more than 15 years.

Further, the MD and CEO or WTD who is also a promoter or a major shareholder, cannot hold these posts for more than 12 years.

Banks will have to comply with the instructions by October 1, 2021.

The central bank further said that the extant instructions on upper age limit for MD & CEO and WTDs in the private sector banks would continue and no person can continue as MD & CEO or WTD beyond the age of 70 years.

Within the overall limit of 70 years, as part of their internal policy, individual bank's Boards are free to prescribe a lower retirement age for the WTDs, including the MD & CEO.

The change in norms may have a major impact on Uday Kotak, the MD and CEO of Kotak Mahindra Bank who would not be eligible for another term at the helm of the bank as per these new norms.

The circular added that in extraordinary circumstances, at the sole discretion of the Reserve Bank, MD & CEO or WTDs who are also the promoter or a significant shareholder may be allowed to continue up to 15 years.

"While examining the matter of re-appointment of such MD & CEOs or WTDs within the 12/15 years period, the level of progress and adherence to the milestones for dilution of promoters' shareholding in the bank shall also be factored in by the Reserve Bank," it said.

Banks with MD & CEOs or WTDs who have already completed 12/15 years as MD & CEO or WTD, on the date these instructions come to effect, shall be allowed to complete their current term as already approved by the Reserve Bank, it said.