On April 26, 2021, the Reserve Bank of India (RBI) through its circular – “Corporate Governance in Banks – Appointment of Directors and Constitution of Committees of the Board”, has fixed 15 years as the tenure for the Managing Director and Chief executive officers (MD & CEOs) or whole-time directors(WTDs) to hold their post in a bank.
- RBI’s instructions are meant for private sector banks, small finance banks (SFBs) and wholly-owned subsidiaries of foreign banks.
- Note – The instructions are not applicable for foreign banks operating as branches in India.
RBI’s Regulations over MD&CEO or WTDs with conditions:
| Instructions for MD&CEO or WTDs | Conditions | |
|---|---|---|
| Tenure | 15 years | – |
| Re-appointment (in the same bank after the completion of tenure) | Eligible – after a gap of 3 years | In the 3 years, they should not be appointed or associated with a bank (directly/indirectly) |
| Tenure for MD&CEO or WTD who is also a promoter/ major shareholder | 12 years | RBI has sole discretion to extend the tenure up to 15 years |
| Upper age limit | 70 years | Banks are freed to prescribe lower retirement age |
Regulations for Non-Executive Directors(NEDs):
| Tenure | 8 years |
| Re-appointment | Eligible after a gap of 3 years |
| Remuneration | Not more than Rs 20 lakh per annum (Exception- Chair of the board) |
| Upper age limit | 75 years |
Regulations over the Committees of the Board:
| Composition | Audit Committee of the Board(ACB) | Risk Management Committee of the Board (RMCB) | Nomination and Remuneration Committee (NRC) |
|---|---|---|---|
| Committee’s Board members | Should be constituted only with NEDs | Should have a majority of NEDs | Only with NEDs |
| Members of the committee’s meeting | Two-third should be of independent directors | Half of the members as independent directors | Half of the member as independent directors (one can be a member of RMCB) |
| Chair of the committee’s meeting | Independent director (should not be a member of ACB) | Independent director (shall be a member of RMCB) | Independent Director (should not be a member of NRC) |
Recent Related News:
On February 17, 2021, the Reserve Bank of India (RBI) has issued “Master Direction – Non-Banking Financial Company – Housing Finance Company (Reserve Bank) Directions, 2021” in the exercise of the powers conferred under sections 45L and 45MA of the Reserve Bank of India Act, 1934 and Sections 30, 30A, 32 and 33 of the National Housing Bank Act, 1987.
About Reserve Bank of India (RBI):
Establishment – 1st April 1935
Headquarters – Mumbai, Maharashtra
Governor – Shaktikanta Das
Deputy Governors – Mahesh Kumar Jain, Michael DebabrataPatra, and M Rajeshwar Rao
