In a move to clean up the private banking sector, the Reserve Bank of India (RBI) has decreed that the post of MD and CEO of a private bank cannot be held by the same individual for more than 15 years. In the case of promoter CEOs, the bank regulator has capped the tenure at 12 years. Thereafter, reappointment as CEO or whole-time director can be considered, but only after a cooling period of three years. Existing norms on the upper age limit for these jobs continues at 70 years, but banks have been given the freedom to pare the age limit down further. For non-executive bank directors, the tenure has been kept at a maximum of eight years, and the age limit 75 years.
Though fresh banking licences for the private sector have been few and far between, the personal grip of some of the promoter MDs/CEOs over the institutions they run has been a worrisome trend. Uday Kotak, promoter of Kotak Mahindra Bank, has been at the helm for nearly two decades, since the bank’s establishment in 2003. More instructive has been the career of Rana Kapoor, the MD and CEO of Yes Bank till recently. Kapoor took charge soon after Yes Bank was given a private banking licence in 2003 and held the top posts till he was forced to step down in January 2019. Rana Kapoor, in jail currently, faces charges of having received kickbacks of over Rs 4,300 crore from sanctioning loans.
Long-lasting bank chiefs are not necessarily a negative. This was proved by Aditya Puri, who was MD and CEO of HDFC Bank for 25 years before he stepped down in 2020. However, if internal checks and balances are lacking, individuals who continue to helm the bank over decades begin to treat these institutions as fiefdoms and the public money they are entrusted with is often misused. These guidelines should therefore be welcome as they will introduce more transparency and nudge banks to prepare succession plans well in advance. However, limiting tenure and age cannot be a panacea to misuse of power. For that, the RBI will have to exercise greater oversight.