RBI caps terms for MDs, CEOs at private banks

RBI has recently capped the tenure of Chief Executive Officers (CEOs), Managing Directors (MDs) and Whole-Time Directors (WTDs) of private banks at 15 years from the date of appointment. For CEOs who are part of the promoter group or large shareholder, the tenure is capped at 12 years. The age cap for independent directors and chairman has been set at 75 years.

The norms have been made tougher as part of the attempts of RBI to strengthen the governance structure in private sector banks against the backdrop of a series of failures in financial institutions.

As per the new rules, an individual will be eligible for re-appointment as an CEO and MD or a whole-time director in the same bank after a minimum gap of three years. In a circular, RBI stated, “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.”

While RBI has capped the tenures of promoter CEOs and WTDs at 12 years, it also stated theirs tenure may be extended to 15 years at the sole discretion of RBI. “In extraordinary circumstances, at the sole discretion of RBI, such MD and CEO or WTDs may be allowed to continue up to 15 years. While examining the matter of re-appointment of such MD and CEOs or WTDs within the 12/15 years period, the level of progress and adherence to milestones for dilution of promoters’ shareholding shall also be factored in by RBI,” it added.

The revised instructions will be applicable to all private sector banks including small finance banks and wholly owned subsidiaries of foreign banks. It will not be applicable in the case of foreign banks operating as branches in India.