RBI suggests capping bank CEO's tenure to 10 years for promoters, 15 years for non-promoters

The Reserve Bank of India (RBI) has proposed capping the tenures of banks' chief executive officers (CEOs) and whole time directors (WTDs) to "build a robust culture of sound governance practice, professional management of banks and to adopt the principle of separating ownership from management". In a draft paper floated for stakeholders' comments, the central bank suggested capping CEOs term to 10 years if they are promoters or major shareholders of the bank. For non-promoter CEOs, the RBI has proposed tenure of 15 years.

ALSO READ: Liquidity pressures after COVID-19 disruption will remain high for NBFCs: RBI study

"Thereafter, the individual shall be eligible for re-appointment as WTD or CEO only after the expiration of three years. During this three-year period the individual shall not be appointed or associated with the bank in any capacity, either directly or indirectly, advisory or otherwise," the RBI further stated in its draft paper.

The RBI further said that on the date of issuance directions regarding bank CEO tenures are issued, banks with WTDs or CEO who have completed 10 or 15 years shall have two years or up to the expiry of the current tenure, whichever is later, to identify and appoint a successor.

ALSO READ: Coronavirus impact: Households' borrowings peaked in March quarter, says RBI

The central bank also listed a set of conditions which will lead to a person being disqualified for the post CEO. The draft paper proposes that directors of any company other than a subsidiary of the bank, or a company registered under section 8 of the Companies Act, 2013, will not be eligible for the post of CEO. Also, the RBI has proposed terming a CEO candidate ineligible if he or she is a partner of any firm which carries on any trade, business or industry, or has substantial interest in any other company or firm, or a director, manager, managing agent, partner or proprietor of any trading, commercial or industrial concern. Persons engaged in any other business or vocation should also be disqualified, the draft paper suggested.

ALSO READ: PMC Bank scam: Bombay HC seeks information on Wadhawans' health condition