On Monday, The Reserve Bank of India (RBI) issued a circular to commercial banks, including Private Sector Banks including Small Finance Banks (SFBs) and wholly owned subsidiaries of Foreign Banks. However, this circular does not apply to foreign banks operating as branches in India.
“ In respect of State Bank of India and Nationalised Banks, these guidelines would apply to the extent the stipulations are not inconsistent with provisions of specific statutes applicable to these banks or instructions issued under the statutes,” read the circular.
As per the central bank’s instructions, the post of Managing Director (MD) and Chief Economic Officer (CEO) MD or Whole Time Director (WTD) cannot be held by the same incumbent for over 15 years.
RBI in a statement said, “Thereafter, the individual will be eligible for re-appointment as MD, CEO of 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 years, the individual can not be appointed or associated with the same bank or its group entities in any capacity, either directly or indirectly, the circular added.
The upper age limit for MD & CEO and WTDs in private banks is kept at the ceiling of 70 years. Individual bank’s Boards have no restrictions to prescribe a lower retirement age, as 70 years is the maximum limit decided for the WTDs, including the MD & CEO.
MD & CEO or WTD who is also a promoter or major shareholder are not allowed to hold these posts for more than 12 years. But, the central bank allowed a promoter, WTD/MD & CEO to serve up to 15 years in “extraordinary circumstances.”
“It is clarified that the extant instructions on upper age limit for MD & CEO and WTDs in the private sector banks would continue and no person can continue as MD & CEO or WTD beyond the age of 70 years. Within the overall limit of 70 years, as part of their internal policy, individual bank’s Boards are free to prescribe a lower retirement age for the WTDs, including the MD & CEO. 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,” said RBI in a statement.
In addition to it, the circular mentioned, “the instructions shall come into effect from the date of issue of this circular, to enable a smooth transition to the revised requirements, banks are permitted to comply with these instructions latest by October 01, 2021.”
“Banks with MD & CEOs or WTDs who have already completed 12/15 years as MD & CEO or WTD, on the date these instructions come into effect, shall be allowed to complete their current term as already approved by the Reserve Bank,” said the central bank.