New Delhi: Reserve Bank of India has capped the tenure of managing director and chief executive ( MD&CEO) of commercial banks for the same incumbent to 15 years. The same limit is applicable to whole time directors (WTD), said RBI on Monday.
MD&CEO or WTD who is also a promoter/ major shareholder, cannot hold these posts for more than 12 years, according to RBI notification. These rules come into effect immediately.
In extraordinary circumstances, RBI at its discretion may allow MD&CEO or WTDs, who are also promoter/major shareholder, to continue up to 15 years. While considering such case, RBI will factor in level of progress and adherence to the
milestones for dilution of promoters’ shareholding in the bank.
Referring to the 15-year cap, the banking regulator said the individual will be eligible for re-appointment as MD&CEO or WTD in the same bank after a minimum gap of three years, subject to meeting other conditions. During the three-year cooling period, the individual can’t be appointed or associated with the bank or its group entities in any capacity.
The current rule that no person can continue as MD&CEO or WTD beyond the age of 70 years in private banks will remain in operation. Within the overall limit of 70 years, as part of their bank, the boards are free to prescribe a lower retirement age.
In order to enable smooth transition to the revised requirements, banks are permitted to comply with these instructions latest by October 01, 2021. Banks with MD&CEOs or WTDs who have already completed 12/15 years can complete their current term as already approved by RBI.
The Chair of the board will be independent director. In the absence of the Chair of the board, the meetings of the board shall be chaired by an independent director.
RBI has released a Discussion Paper on ‘Governance in Commercial Banks in India’ oon June 11, 2020 to review the framework for governance in the commercial banks.
The revised instructions would be applicable to all the private sector banks, including small finance banks (SFBs) and wholly owned subsidiaries of foreign banks. As for State Bank of India and nationalised Banks, these guidelines
would apply to the extent the stipulations are not inconsistent with provisions of specific statutes and rules applicable to these banks.
The circular will not be applicable in the case of foreign banks operating as branches in India. “The applicability
to other commercial banks viz., Local Area Banks, Payments Banks and Regional Rural Banks will be notified separately,” RBI added.