RBI issues guidelines regarding term of bank MDs, CEOs

The Reserve Bank of India on April 26, 2021 issued certain guidelines for the governance of banks, including private banks, Small Finance Banks (SFBs) and Wholly Owned Subsidiaries of Foreign Banks. 

The apex bank clarified that the guidelines are not applicable to foreign banks operating as branches in India.

The RBI stated that while the guidelines are being brought into immediate effect, in order to enable smooth transition to the revised requirements, banks have been permitted to comply with these instructions latest by October 01, 2021.

Key Highlights 

•As per the latest RBI guidelines, the post of Managing Director (MD) and Chief Economic Officer (CEO) MD or Whole Time Director (WTD) of a bank cannot be held by the same person for more than 15 years.

•RBI said in a statement that 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.

•During the three-year gap, the individual shall not be appointed or associated with the bank or its group entities in any capacity, either directly or indirectly. 

•Further, the guidelines state that upper age limit for MDs and CEOS and WTD's will continue to be 70 years in private banks.

•The boards of individual banks are, however free to decide as a part of their internal policy a lower retirement age for MDs, CEOs & WTDs within the overall limit of 70 years.

•Besides this, the MD/ CEO or WTD who is also a major shareholder of the bank cannot hold these posts for more than 12 years.

•The RBI stated that it may allow a major shareholder/ promoter WTD/MD & CEO to continue up to 15 years in "extraordinary circumstances."

•The level of progress and adherence to milestones for dilution of promoters’ shareholding in the bank shall also be factored in by the RBI while examining the matter of re-appointment of such MD&CEOs or WTDs within the 12 or 15 years period.