RBI proposes to limit tenures of CEOs & whole-time directors of commercial lenders

The RBI has said it is desirable to limit the tenure of the WTDs or CEOs “to build a robust culture of sound governance practice, professional management of banks and adopt the principle of separating ownership from management”.




In a significant proposal, the Reserve Bank of India has proposed to restrict the tenure of chief executive officers and whole-time director of commercial banks to 10 years if the person is from the promoter group and 15 years in the case of professional management.

The RBI has said it is desirable to limit the tenure of the WTDs or CEOs “to build a robust culture of sound governance practice, professional management of banks and adopt the principle of separating ownership from management”. “It is felt that 10 years is an adequate time limit for a promoter/ major shareholder of a bank as WTD or CEO of the bank to stabilise its operations and transition the managerial leadership to a professional management,” said a consultative paper on governance issued by the Department of Regulation of the RBI.

The RBI proposal, if implemented, will lead to the selection of a new CEO in a leading private sector bank run by a promoter family. However, the tenure of HDFC Bank CEO Aditya Puri who has been CEO of HDFC Bank for 26 years will end in October this year. “This will not only help in achieving the separation of ownership from management but also reinforce a culture of professional management,” RBI said. A management functionary who is not a promoter or major shareholder can be a WTD or CEO for 15 consecutive years. Thereafter, they should be eligible for re-appointment as WTD or CEO only after the expiration of three years.

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