In a move to strengthen governance and succession planning in private banks, the Reserve Bank of India (RBI) on Wednesday has mandated that they have at least two Whole-Time Directors (WTDs), including the Managing Director and Chief Executive Officer (MD&CEO).
The RBI issued a circular to all private sector banks and wholly-owned subsidiaries of foreign banks stating that the growing complexity of the banking sector requires an effective senior management team to navigate ongoing and emerging challenges. The establishment of such a team can also facilitate succession planning, especially given the regulatory stipulations on tenure and upper age limit for MD&CEOs.
The circular advises banks to ensure the presence of at least two WTDs on their Boards, including the MD&CEO. The number of WTDs shall 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.
Banks that currently do not meet the minimum requirement of two WTDs are advised to submit their proposals for the appointment of WTD(s) to the RBI within four months from the date of issuance of the circular. Banks that do not already have the enabling provisions regarding appointment of WTDs in their Articles of Association may first seek necessary approvals under Section 35B(1)(a) of the Banking Regulation Act, 1949, expeditiously.
The RBI’s mandate is expected to have a significant impact on private banks in India. Many private banks currently have only one WTD, in addition to the MD&CEO. These banks will now need to identify and appoint additional WTDs, which will require them to cast a wider net for talent and expertise.
The mandate is also likely to lead to a more robust and diverse senior management team in private banks. With more WTDs at the helm, banks will be better positioned to deal with the complex challenges of the banking sector, such as digital transformation, risk management, and regulatory compliance.
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