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Reserve Bank of India has put a cap on the maximum age of a bank CEO, paving the way for a younger lot to helm banks transitioning into digitalisation.
The Reserve Bank of India has fixed the tenure of MD, CEO and whole-time director (WTD) in a private sector bank at 15 years and prescribed the maximum age of 70 years for such functionaries.
This will lead to a change in succession planning at the banks.
The impact
Uday Kotak, the promoter MD and CEO, got reappointed on January 1, 2021, for three years. His tenure will end on January 1, 2024, and is not eligible for reappointment as he has already completed 15 years as the MD and CEO.
HDFC Bank, ICICI Bank, Axis Bank CEOs have had plenty of time and can be the CEO for more than a decade as they were appointed on the post recently.
IndusInd Bank CEO Sumant Kathpalia took charge last year and can continue at the helm of affairs for more than a decade
Kamakodi, CEO of City Union Bank, will complete his 15-year tenure in May 2026, which will be two years before his retirement.
In the case of Bandhan Bank, if the RBI considers the date of conversion to bank, which is five years ago, then C S Ghosh has a long time ahead.
The upper limit of 15 years for MD and CEOs may increase the scope for a few more years at the helm for banks like DCB, Federal and RBL.
The road ahead
The provision that individual will be eligible for reappointment as MD and CEO or whole-time director in the same bank after a minimum gap of three years, leaves an opportunity for the promoter-CEO to take the bank helm after a gap of three years
Experts say while the tenure cap benefits new age banks, which need a younger lot to steer them, the bank-promoter CEO enterprise would have an impact.
The new norms will also lead to bigger involvement of independent director and non-executive directors in the bank affairs and help in good governance and vigil. 0
The RBI directives
These directives form part of the instructions issued by the RBI with regard to the chair and meetings of the board, the composition of certain committees of the board, age, tenure and remuneration of directors, and appointment of the WTDs on Monday.
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 & 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 & 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.
With regard to the 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.