The decisive guidelines issued by the Central Bank Reserve Bank of India (RBI) regarding the tenure of MDs, CEOs or full-time directors of banks will also apply to private banks, small finance banks (SFBs) and wholly owned entities of foreign banks. Under the new guidelines, in the case of private banks, the same person cannot work for 15 consecutive years as MD and CEO. However, in the case of promoter MD / CEO, the maximum tenure has been fixed at 12 years. According to the directives issued by the RBI, under special circumstances and at the discretion of the bank, the tenure of the promoter CEO can be extended up to 15 years. The management of HDFC Bank, ICICI Bank and IndusInd Bank has been changed a while ago but according to Axis Securities research analysts Sizzi Philip and Dayanand Vaidya, Kotak Mahindra Bank, DCB Bank, City Union Bank, Federal Bank and RBL Bank’s current MD has been employed for more than 10 years.
HDFC Bank, ICICI Bank and Axis Bank will not be affected by the RBI instructions as their CEO has been appointed recently and they have more than 10 years to hold this post. The CEO of HDFC Bank took over last year in 2020, the CEO of ICICI Bank two years ago.
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RBI guidelines negatively impact Kotak Mahindra Bank
The tenure of the MD of Kotak Mahindra Bank has been extended till 2024 and the term of MD of City Union Bank has been extended till 2026. Analysts believe that the new RBI guidelines will have a negative impact on Kotak Mahindra Bank as Uday Kotak, the bank’s promoter MD and CEO, will no longer be appointed to the post. However, his stake in the bank will continue. Uday Kotak was appointed to his post again on January 1, 2021, for three years. In a note from Macquarie Research, analyst Suresh Ganapathi said that after completing this three-year period, Uday Kotak will not be able to become the MD and CEO of the bank as he will complete his 15-year term.
According to Ganapathi, the joint MD of Kotak Bank will not be able to become the CEO of the bank after Uday Kotak as the 15-year cap on the board can also apply to full-time directors.
RBI guidelines will be implemented from 1 October 2021
According to the RBI circular, MDs, CEOs and full-time directors in private sector banks will only be able to hold office for a maximum of 70 years. Banks will have to implement this RBI guideline from October 1, 2021. According to the RBI directive, if an MD, CEO and full-time director completes a term of 12 or 15 years by October 1, he / she will still be allowed to complete the current term.
The RBI has clarified that an individual MD, CEO or full-time director in the same bank can re-take charge if the board considers it necessary. However, for this, there should be a gap of at least three years along with other necessary conditions. According to the RBI, during this three-year cooling period, the individual bank or any of its group entities will not be directly or indirectly connected in any way.
(Article: Surbhi Jain)