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Monday, May 17, 2021

RBI caps pvt bank MD, CEO age at 70

The total tenure of an NED, continuously or otherwise, on the board of a bank, should not exceed eight years.

By: ENS Economic Bureau | Mumbai |
April 27, 2021 12:56:44 am
After completing eight years on the board, the person may be considered for re-appointment only after a minimum gap of three years, the RBI added.

The RBI on Monday fixed the tenure of the managing director (MD), chief executive officer (CEO) and whole-time director (WTD) in a private sector bank at 15 years and prescribed the maximum age at 70 years for such functionaries.

Unveiling the norms regarding the chair and meetings of the board, composition of certain committees of the board, age, tenure and remuneration of directors and appointment of WTDs on Monday, the Reserve Bank of India (RBI) said the upper age limit for non-executive directors (NEDs), including the Chair of the board, should be 75 years and after attaining the age of 75, no person can continue in these positions.

The total tenure of an NED, continuously or otherwise, on the board of a bank, should 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, the RBI added.

In addition to sitting fees and expenses related to attending meetings of the board and its committees as per extant statutory norms/practices, the bank may provide for payment of compensation to NEDs in the form of a fixed remuneration commensurate with an individual director’s responsibilities and demands on time, which are considered sufficient to attract qualified competent individuals. However, such fixed remuneration for an NED, other than the Chair of the board, should not exceed Rs 20 lakh per annum, the RBI said.

The MD & CEO or WTD, who is also a promoter or major shareholder, cannot hold these posts for over 12 years. However, in extraordinary circumstances, at the sole discretion of the Reserve Bank, such MD & CEO or WTD may be allowed to continue up to 15 years.

While examining the matter of re-appointment of such MD & CEO or WTD within the 12-15 years period, the level of progress and adherence to the milestones for dilution of promoters’ shareholding in the bank should also be factored in by the RBI.

“The Chair of the board should be an independent director. In the absence of the Chair of the board, the meetings of the board should be chaired by an independent director. The quorum for the board meetings should be one-third of the total strength of the board or three directors, whichever is higher,” it said. At least half of the directors attending board meetings shall be independent directors.

The Audit Committee of the board (ACB) shall be constituted with only NEDs. The Chair of the board shall not be a member of the ACB. The ACB shall meet with a quorum of three members. At least two-thirds of the members attending the meeting of the ACB should be independent directors.

The board should constitute a risk management committee (RMCB) with a majority of NEDs.

“Though a cap on CEO tenures is contented to separate ownership from management, it would have a pernicious impact upon shareholder interest of private banks. As such a limitation on tenure would boost short-term decisions by the CEO thereon, it would be in contradiction to the stakeholder interest,” said Sonam Chandwani, managing partner, KS Legal & Associates.

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