The Reserve Bank of India (RBI) final guidelines on the tenure of bank general manager, CEO or full-time director (WTD) will apply to private lenders, small financial banks (SFBs) and subsidiaries in 100% from foreign banks. According to the new guidelines, the position of managing director and managing director of a private bank cannot be held by the same person for more than 15 years at a time. Whereas, in the case of an MD / CEO promoter, the term will be capped at 12 years. RBI noted that under special circumstances and at the discretion of the umbrella bank, the tenure of the promoter CEO can be extended up to 15 years. “Banks such as HDFC Bank, ICICI Bank and IndusInd Bank have recently experienced a change of direction. However, banks like Kotak Mahindra Bank, DCB Bank, City Union Bank, Federal Bank and RBL Bank have long tenure (+10 years) of current MDs, ”said Siji Philip and Dnyanada Vaidya, research analysts. at Axis Securities.
Negative RBI Guidelines for Kotak Mahindra Bank
For Kotak Mahindra Bank and City Union Bank, the term extension has already been made until 2024 and 2026, respectively. Analysts believe this development is slightly negative for Kotak Mahindra Bank, as Uday Kotak, the MD promoter and CEO, will not be eligible for renewal after his term ends. However, it will continue to remain a stakeholder in the bank. Uday Kotak was reappointed on January 1, 2021 for a period of three years. “Therefore, his term will now end on January 1, 2024 and he is not eligible for renewal as he has already completed 15 years as a managing director,” Suresh Ganapathy, analyst at Macquarie Research said in a note.
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Ganapathy also said second Dipak Gupta (current chief executive) may not be eligible to succeed Kotak as CEO, as the 15-year cap applies to all full-time directors (WTDs) on the board. The RBI circular also said that the upper age limit for CEO and CEO and WTDs in private sector banks will be maintained and no one can continue as CEO and CEO or WTD beyond that. 70 years old. Banks are allowed to comply with these instructions no later than October 1, 2021. It should be noted that banks whose CEO and CEO or WTD have already completed 12 or 15 years as CEO or CEO or WTD, on the date mentioned, these instructions come into effect, will be authorized to complete their current term as already approved by the Reserve Bank.
Shares of Kotak Mahindra Bank were trading nearly 3 percent higher at Rs 1,799 each on BSE in intraday trades on Wednesday. So far 46,000 shares in total have traded on BSE, while a total of 19.40 lakh shares have traded hands on NSE. RBI also clarified that the person may be reappointed as Managing Director and CEO or WTD in the same bank, if the board deems it necessary and desirable, after a minimum interval of three years, subject to completing other conditions. “During this three-year cool-down period, the individual will not be named or associated with the bank or its affiliates in any capacity, directly or indirectly,” RBI said.
HDFC Bank, ICICI Bank, Axis Bank seem good
According to Ganapathy, CEOs of HDFC Bank, ICICI Bank and Axis Bank have plenty of time and can be CEOs for over a decade since they were recently appointed CEOs. The CEO of HDFC Bank took the reins last year while the CEO of ICICI Bank took the reins a few years ago. Likewise, Axis CEO can also be the CEO for more than a decade.