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Bank CEOs Not To Get Extension Beyond 15 Years: RBI To Banks

The RBI had issued a discussion paper in June 2020 that proposed capping the tenure of bank CEOs who are promoters or large shareholders at 10 years.

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Tightening the corporate governance norms in the private sector banks, the Reserve Bank of India on Monday said CEOs, MDs and whole-time directors (WTDs) will have to undergo a mandatory three-year cooling period before seeking re-appointment on completion of 15-year term.

The RBI's latest guidelines may have impact on Kotak Mahindra Bank founder CEO Uday Kotak, who has been steering the bank since it got permission from the apex bank in 2003.

Other CEOs who have completed over 10 years are Vishwavir Ahuja of RBL Bank and Shyam Srinivasan of Federal Bank.

Following this guidelines, Aditya Puri will be the longest-serving CEO of any private sector lender in the country. He headed HDFC Bank for almost 26 years.

The Reserve Bank of India (RBI) has prescribed the maximum age of 70 years for MDs, CEOs and WTDs and 75 years for chairman and non-executive directors (NEDs) in the private sector banks.

These directives form part of the instructions issued by the RBI with regard to the chair and meetings of the board, composition of certain committees of the board, age, tenure and remuneration of directors, and appointment of the WTDs on Monday.

The RBI had issued a discussion paper in June 2020 that proposed capping the tenure of bank CEOs who are promoters or large shareholders at 10 years.

In a draft paper floated for stakeholders' comments, the central bank suggested capping CEOs' term to 10 years if they are promoters or major shareholders of the bank. For non-promoter CEOs, the RBI has proposed tenure of 15 years.

The RBI said it would come out with a Master Direction on Corporate Governance in banks in due course.

'Subject to the statutory approvals required from time to time, the post of the MD and CEO or WTD cannot be held by the same incumbent for more than 15 years.

'Thereafter, the individual will be eligible for re-appointment as MD and CEO or WTD in the same bank, if considered necessary and desirable by the board, after a minimum gap of three years, subject to meeting other conditions,' the RBI said.

It added that during this three-year cooling period, the individual shall not be appointed or associated with the bank or its group entities in any capacity, either directly or indirectly.

Those MDs and CEOs who are also promoters or majority shareholders cannot serve in these positions for longer than 12 years, the central bank said.

However, at the discretion of the central bank, they 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-year period, the level of progress, adherence to the RBI's promoter shareholding norms will be factored into the decision making process by the central bank.

These conditions will not be applicable to those foreign banks that have branches in India, the RBI said.

With regard to upper age limit for MD & CEO and WTDs in the private sector banks, the RBI said that no person can continue on such positions beyond the age of 70 years. The banks' boards, however, will be free to prescribe a lower retirement age for the WTDs, including the MD & CEO.

The maximum age limit for chairman and non-executive directors has been fixed at 75 years.

The total tenure of an NED, continuously or otherwise, on the board of a bank, shall not exceed eight years. After completing eight years on the board, the person may be considered for re-appointment only after a minimum gap of three years.

This directive will not preclude him/her from being appointed as a director in another bank subject to meeting the requirements.

The RBI directives also stipulate that the fixed remuneration for an NED, other than the chair of the board, shall not exceed Rs 20 lakh per annum.

The board will be required to constitute an nomination and remuneration committee (NRC) made up of only NEDs. The NRC shall meet with a quorum of three members. At least half of the members attending the meeting of the NRC shall be independent directors, of which one shall be a member of the risk management committee of the board (RMCB).

The meetings of the NRC shall be chaired by an independent director. The chair of the board shall not chair the NRC. The meeting of NRC may be held as and when required, the RBi said.

It further said the audit committee of the board (ACB) will comprise of only non-executive directors (NEDs). The board, it added, will also constitute an RMCB with a majority of NEDs.

The fresh guidelines are expected to strengthen the corporate governance in commercial banks and aviod repeat of epiode like YesBank Rana Kapoor and ICICI Bank Chanda Kochhar.

While the instructions shall come into effect from the date of issue of this circular, in order to enable smooth transition to the revised requirements, banks are permitted to comply with these instructions latest by October 1, 2021, it said.