RBI asks private banks to have at least two whole-time directors on boards

The Reserve Bank of India (RBI) on Wednesday directed private and wholly-owned subsidiaries of foreign banks to have at least two whole time directors (WTDs) on their boards. This means that these banks must have at least one WTD in addition to the Managing Director (MD) and Chief Executive Officer (CEO).
The regulator said the number of WTDs will be decided by the board of the bank by taking into account factors such as the size of operations, business complexity, and other relevant aspects.
Given the growing complexity of the banking sector, it becomes imperative to establish an effective senior management team in the banks to navigate ongoing and emerging challenges, it said.
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“Establishment of such a team may also facilitate succession planning, especially in the background of the regulatory stipulations in respect of tenure and upper age limit for MD & CEO positions,” the RBI said in a notification.
It advised banks that currently do not meet this minimum requirement to submit their proposals for the appointment of WTDs within four months.
The RBI said that those banks which do not already have the enabling provisions regarding appointment of WTDs in their Articles of Association may first seek necessary approvals expeditiously so as to be in a position to comply with the requirements.
“While ensuring compliance to the above instructions, careful consideration shall also be given to meet the requirements under other applicable statutory/regulatory provisions,” it said.
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In April 2021, the RBI had issued norms for the appointment of directors and constitution of committees of the boards of private banks, including Small Finance Banks (SFBs) and wholly owned subsidiaries of foreign banks. These norms were issued as part of the effort to strengthen the corporate governance in banks. In respect of tenure of MD&CEO and WTDs, the RBI had said that these posts cannot be held by the same incumbent for more than 15 years. The regulator also clarified that no person can continue as MD&CEO or WTD beyond the age of 70 years in the private banks.
“MD&CEO or WTD who is also a promoter/ major shareholder, cannot hold these posts for more than 12 years. However, in extraordinary circumstances, at the sole discretion of the Reserve Bank such MD&CEO or WTDs may be allowed to continue up to 15 years,” the RBI said.
These norms led to the sudden exit of Uday Kotak recently. On September 2, Kotak, who led the bank for over two decades, announced to step down as its Managing Director (MD) and CEO four months ahead of the end of his tenure. Last week, the bank said it has received the RBI’s approval for the appointment of veteran banker Ashok Vaswani as the MD and CEO.