Thursday, June 24, 2021

Chair of the board should be an independent director, says RBI to private banks

The Reserve Bank of India has asked private banks that the Chair of the board should be an independent director.  RBI has published the notification ‘Corporate Governance in Banks – Appointment of Directors and Constitution of Committees of the Board’ yesterday. It will be applicable to all the Private Sector Banks including Small Finance Banks (SFBs) and wholly owned subsidiaries of Foreign Banks. RBI has asked that the Audit Committee, Nomination and Remuneration Committee of the Board shall be constituted with only non-executive directors. Non-executive directors should be in majority in the Risk Management Committee of the Board.

The post of the MD & CEO cannot be held by the same person for more than 15 years. promoter/ major shareholder, cannot hold these posts for more than 12 years. Thereafter the same person can be re-appointed only after a minimum gap of three years. During these three years, the individual shall not be appointed or associated with the bank or its group entities in any capacity, either directly or indirectly.

RBI has also fixed a maximum age of 70 for MD & CEO and 75 for non-executive directors.

Banks are permitted to comply with these instructions latest by 1st October 2021. At present, Chair of board who is not an independent director as on date can complete the current term as Chair as already approved by the Reserve Bank. Banks with MD&CEOs or Whole Time Directors who have already completed 12/15 years as MD & CEO or Whole Time Directors shall be allowed to complete their current term as already approved by the Reserve Bank.

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