RBI did clarify, though, that in the interest of a smooth transition to the new requirements, incumbents who have already completed the 12/15-year tenure as bank chiefs will be allowed to complete their current term.RBI did clarify, though, that in the interest of a smooth transition to the new requirements, incumbents who have already completed the 12/15-year tenure as bank chiefs will be allowed to complete their current term.The fixed remuneration for an NED other than the chair of the board will be capped at Rs 20 lakh per annum.

The post of MD & CEO of a private bank cannot be held by the same individual for more than 15 years at a stretch, the Reserve Bank of India (RBI) said on Monday in a set of instructions for banks. In case of a promoter-CEO, the tenure will be capped at 12 years.

RBI did clarify, though, that in the interest of a smooth transition to the new requirements, incumbents who have already completed the 12/15-year tenure as bank chiefs will be allowed to complete their current term. Uday Kotak, promoter of Kotak Mahindra Bank, is at present the longest-serving chief of a bank, having assumed charge at the time of the bank’s establishment in 2003. In December, the RBI had approved Kotak’s reappointment as MD & CEO for a three-year term beginning January 1, 2021. Earlier, in October 2020, Aditya Puri stepped down from the MD’s role at HDFC Bank after having held it for over 25 years.

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“Subject to the statutory approvals required from time to time, the post of the MD & CEO or WTD (whole-time director) cannot be held by the same incumbent for more than 15 years. Thereafter, the individual will be eligible for re-appointment as MD & CEO or WTD in the same bank, if considered necessary and desirable by the board, after a minimum gap of three years, subject to meeting other conditions,” RBI said in a notification. During this three-year cooling period, the individual shall not be appointed or associated with the bank or its group entities in any capacity, either directly or indirectly.

The existing norms on the upper age limit for MD & CEO and WTDs in private sector banks would continue and no person will be allowed to hold these posts beyond the age of 70 years. Within the overall limit of 70 years, as part of their internal policy, individual banks’ boards are free to prescribe a lower retirement age for the WTDs, including the MD & CEO.

A promoter who is also MD & CEO or a WTD may be allowed to continue up to 15 years only in extraordinary circumstances and at the sole discretion of the RBI. “While examining the matter of re-appointment of such MD & CEOs or WTDs within the 12/15 years period, the level of progress and adherence to the milestones for dilution of promoters’ shareholding in the bank shall also be factored in by the Reserve Bank,” the notification said.

Banks have been permitted to comply with these instructions by October 1, 2021, even though the notification takes immediate effect. The chair of the board who is not an independent director on the date of issue of the circular shall be allowed to complete the current term as chair as already approved by the RBI. Banks with MD & CEOs or WTDs who have already completed 12/15 years as MD & CEO or WTD on the date these instructions come into effect, shall be allowed to complete their current term.

In addition to sitting fees and expenses related to attending meetings of the board, banks will be allowed to provide for payment of compensation to non executive directors (NEDs) in the form of a fixed remuneration. The fixed remuneration for an NED other than the chair of the board will be capped at Rs 20 lakh per annum.

The upper age limit for NEDs, including the chair of the board, shall be 75 years. The total tenure of an NED, continuously or otherwise, on the board of a bank, shall not exceed eight years. After completing eight years on the board of a bank the person may be considered for re-appointment only after a minimum gap of three years.

The board shall constitute a nomination and remuneration committee (NRC) made up of only NEDs and a risk management committee with a majority of NEDs. At least half of the members attending the meeting of the risk management committee shall be independent directors, of which at least one member shall have professional expertise in risk management. The chair of the board may be a member of this committee only if they have the requisite risk management expertise. The risk management committee shall meet at least once in each quarter.

A bank’s audit committee shall be constituted with only NEDs, with the chair of the board not being one of them. At least two-thirds of the members attending a meeting of the audit committee must be independent directors and it shall meet at least once in a quarter. The meetings of the audit committee shall be chaired by an independent director who does not chair any other committee of the board. The chair of the audit committee will also not be a member of any committee which has a mandate of sanctioning credit exposures. All members should have the ability to understand all financial statements and at least one member shall have professional expertise in financial accounting or financial management.

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