Tag: extension

FinMin extends Uday Kotak’s term as IL&FS Chairman by six months

Banking & Finance

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The Finance Ministry has now paved the way for Uday Kotak, Managing Director & CEO of Kotak Mahindra Bank to remain chairman of the Board of Infrastructure Leasing and Financial Services Ltd (IL&FS) for six more months.

The Department of financial services (DFS) in the Finance Ministry has now extended by six months (from October 3, 2021 to April 2 next year) the existing exemption accorded to Kotak Mahindra Bank regarding its MD& CEO Kotak serving as a non-executive director in IL&FS. This finance ministry move comes on the recommendation of the Reserve Bank of India.

This is the fifth time such an extension is being given to Kotak Mahindra Bank under the Banking Regulation Act 1949.

It may be recalled that the RBI had, on December 14, 2020, approved a three-year tenure extension to Kotak as CEO of Kotak Mahindra Bank till December 31, 2023.

Exemptions to norm

The Banking Regulation Act 1949 prohibits a bank from being managed by a person who is a director of any other company (other than a subsidiary of a banking company or a non-profit company registered under Companies Act 1956). It, however, allows the central government to provide exemptions to this norm for a specified period based on the recommendation of the RBI.

The government had in 2018 appointed Kotak to the Board of IL&FS to help the crisis-ridden IL&FS, which had seen a blowout, come out of its mess.

The finance ministry had first granted a three-month extension under the Banking Regulation Act, followed by nine months extension and two more extensions of one year each. Kotak’s term as Chairman of the Board of IL&FS was due to end on October 2 this year.

Complex web

The Kotak-led Board at IL&FS had discovered a complex web of over 250 companies forming part of the IL&FS group, which had an outstanding of over ₹ 94,000 crore to lenders.

On Tuesday, in the context of the Evergrande development– which roiled the global capital markets– Kotak had tweeted that the Indian government had acted swiftly on the IL&FS matter and that the Government-appointed board estimates 61 per cent recovery at IL& FS.

Kotak’s tweet on the Evergrande development said, “Evergrande seems like China’s Lehman moment. Reminds us of IL&FS. Indian government acted swiftly. Provided calm to financial markets. The Government appointed Board estimates 61 per cent recovery at IL&FS. Evergrande bonds in China trading ~25 cents to a dollar”.

Meanwhile, commenting on Kotak’s extension as Non-Executive Chairman of IL&FS, C S Rajan, Managing Director, IL&FS, said, “IL&FS is privileged to enjoy the continued leadership of Kotak for another six months. I am confident that under his guidance the IL& FS would accomplish the resolution targets set”.

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RBI Dy Governor Mahesh Jain gets two-year extension

Banking & Finance

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The Appointments Committee of the Cabinet on Tuesday approved the re-appointment of Mahesh Kumar Jain, Deputy Governor, Reserve Bank of India (RBI), for two years with effect from June 22.

It may be recalled that Jain’s three-year term as RBI Deputy Governor is due to get completed on June 21.

With the re-appointment of Jain, the Centre has stuck to the tradition of having a commercial banker occupy the post of RBI Deputy Governor (reserved for bankers). As a result, the central bank now has four serving RBI Deputy Governors. The other three serving deputy governors are Michael Patra, M Rajeshwar Rao and Rabi Sankar.

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RBL, DCB and Federal Bank may hunt for new CEOs, BFSI News, ET BFSI

Banking & Finance

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It’s not just Kotak Mahindra Bank that has to do succession planning after the RBI capped the tenure of private bank CEOs at 15 years.

DCB Bank, RBL Bank and Federal Bank will have to look for new CEOs after the term of current ones ends in the next three years.

DCB Bank CEO Murali Natrajan has completed 12 years in the job and got a year’s extension this month.

Federal Bank CEO Shyam Srinivasan will complete 11 years in September when his second consecutive one-year extension ends.

RBL’s Vishwavir Ahuja also completes 11 years in June and is awaiting the RBI nod for another three-year term after the bank’s board approved such a proposal in January. Federal Bank and RBL boards have sought three-year terms for their CEOs. It remains to be seen whether the RBI will give this extension, which is within the 15-year limit.

Why the move?

The regulator’s directions on limiting CEO tenures come after the publication last summer of a discussion paper that had sought a review of the governance framework at commercial banks. A bank CEO who is also a promoter or major shareholder cannot hold these posts for more than 12 years, the revised RBI rules said.

Experts say governance lapses at Yes Bank also prompted the move by the central bank.

The new norms do not apply to bank CEOs whose tenures have already been approved by RBI.

“Banks with MDs & CEOs or whole-time directors (WTD) who have already completed 12 or 15 years as MD & CEO or WTD, on the date these instructions come into effect, shall be allowed to complete their current term as already approved by the Reserve Bank.”The banking regulator said

The impact

Bankers said the central bank’s move could hurt stability at small and medium private sector banks that require strong leadership and an understanding of the business to stand out in a competitive lending business. In a related move, the RBI has directed that half the directors in banks be independent ones. It has also put an annual Rs 20-lakh ceiling on fees to be paid to independent directors. It also said that independent directors have to chair bank boards.

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