Private bank CEOS likely to get tenure of 15 years

It could be applicable to both promoters and professionals, if allowed by the RBI

The tenure of chief executive officers (CEOS) of private banks — be they promoters or professionals — may be capped at 15 years. This could be part of the revisit of the central bank’s draft code on governance, to which banks have given their responses.

The other change on the cards is to make CEOS part of the risk management committee (RMC) and an invitee to audit committee (AC) meetings. The chairman’s presence on key committees may be decided by the board, based on the expertise of the incumbent.

Having separate maximum tenures for promoter and professional CEOS at 10 years and 15 years, respectively, in the draft code was being viewed as unfair to the former. While no advanced economy has a cap on bank CEOS’ tenure, this argument may not pass muster with the RBI, and a cap of 15 years is the most likely outcome.

“This aspect was also raised by several large institutional investors, who want visibility over the CEO’S tenure at a time when several banks are at a critical stage to raise capital amid the Covid pandemic,” said a source. It was also pointed out that abrupt changes in corner-rooms can have a bearing even in the immediate term, given that a one-time loan-recast policy is in the works. “You can’t have questions of a baton-change playing in the background now,” said another source.

The central bank’s draft code, however, stated that from the date of issuance of the guidelines and directions, banks with promoter and professional CEOS “who have completed 10 or 15 years shall have two years, or up to the expiry of the current tenure, whichever is later, to identify and appoint a successor.” The lastmentioned aspect can be expected to hold good even with a common tenure cap of 15 years for both categories of private bank CEOS.

Private bank CEOS will now have to put in place clear succession plans by identifying candidates having proven ability to run a large business.

While the draft code stated the chief risk officer, chief compliance officer, chief vigilance officer and human resource head would report to the board, these key personnel might now have one-on-one meetings with the respective board committees without the CEO being present. This is the practice in the case of the AC and RMC.

This change has been warranted by the fact that having key officials report to board committees was out of kilter with Subsection IA (Sub-clause ii) of 10B of the Banking Regulation Act. According to the Act, “The management of the whole of the affairs of such a banking company shall be entrusted to a managing director who shall exercise his powers subject to the superintendence, control and direction of the board of directors.” The governance code was the subject of a major discussion at the Centre for Advanced Financial Research set up by RBI last week.