The Reserve Bank of India on Monday issued certain instructions on the governance for banks, including private banks, Small Finance Banks (SFBs), Wholly Owned Subsidiaries of Foreign Banks. However, it added that this circular is not applicable to foreign banks operating as branches in India.
As per the instructions from the central bank, 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 more than 15 years.
“Thereafter, the individual will be eligible for re-appointment as MD&CEO or 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,” RBI said in a statement.
During this three-year cooling period, the individual shall not be appointed or associated with the bank or its group entities in any capacity, either directly or indirectly, it added.
Moreover, the upper age limit for MD & CEO and WTDs in private banks would continue to be 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.
The central bank also stated that it may allow promoter WTD/MD & CEO to continue up to15 years in “extraordinary circumstances.”
While examining the matter of re-appointment of such MD&CEOs or WTDs within the 12/15 years period, the level of progress and adherence to the milestones for dilution of promoters’ shareholding in the bank shall also be factored in by the Reserve Bank, it said.
On the transition arrangement, the central bank said, “While the instructions shall come into effect from the date of issue of this circular, in order to enable smooth transition to the revised requirements, banks are permitted to comply with these instructions latest by October 01, 2021.”
Specifically: (i) The Chair of board who is not an independent director on the date of issue of this circular shall be allowed to complete the current term as Chair as already approved by the Reserve Bank.
(ii) Banks with MD&CEOs or WTDs who have already completed 12/15 years as MD&CEO or WTD, on the date these instructions coming to effect, shall be allowed to complete their current term as already approved by the Reserve Bank.
The total tenure of an NED, continuously or otherwise, on the board of a bank, shall not exceed eight years. After completing eight years on the board, the person may be considered for re-appointment only after a minimum gap of three years.
This directive will not preclude him/her from being appointed as a director in another bank subject to meeting the requirements.
The RBI directives also stipulate that the fixed remuneration for an NED, other than the chair of the board, shall not exceed ₹20 lakh per annum.
The board will be required to constitute an nomination and remuneration committee (NRC) made up of only NEDs. The NRC shall meet with a quorum of three members. At least half of the members attending the meeting of the NRC shall be independent directors, of which one shall be a member of the risk management committee of the board (RMCB).
The meetings of the NRC shall be chaired by an independent director. The chair of the board shall not chair the NRC. The meeting of NRC may be held as and when required, the RBi said.
It further said the audit committee of the board (ACB) will comprise of only non-executive directors (NEDs). The board, it added, will also constitute an RMCB with a majority of NEDs.