The Reserve Bank of India (RBI) said on Monday that chief executive officers (CEOs) and managing directors (MDs) at Indian private-sector banks will be eligible to hold these posts for up to 15 years, as it unveiled a series of rules on term limits.
Analysts welcomed the new rules and said they may be extended to the shadow banking sector as well. “These are some learnings from the banking crisis that unfolded last year from the Yes bank case, so the RBI is putting these steps in place to ensure that such kind of issues don’t arise in future,” said Asutosh K Mishra, analyst at a domestic brokerage house, Ashika Stock Broking.
In March 2020 the central bank rescued Yes Bank, then the country’s fifth-largest private lender, as it reeled under a mountain of bad loans due to its exposure to shadow lenders and real estate companies. The central bank also said on Monday that a CEO, MD or whole-time director (WTD) who is a promoter or major shareholder of a bank as well will not be eligible to hold these posts for more than 12 years, with an extension of up to 15 years permitted at its sole discretion.
Bank chiefs who are not promoters will be eligible for a second-term, even after the 15-year period. “Thereafter, the individual will be eligible for re-appointment as MD and CEO or WTD in the same bank, if considered necessary and desirable by the board, after a minimum gap of three years,” it added.
During this three-year gap, the individual shall not be appointed or associated with the bank or its group entities in any capacity, directly or indirectly, it added. RBI also said the chairman of the board must be an independent director
It also listed some other guidelines on the pay of non-executive directors, age limits and setting up of audits, remuneration and risk-management committees
The RBI has given banks until October 1 to comply with the rules.