In a move to strengthen governance in private sector banks and wholly-owned subsidiaries of foreign banks, the Reserve Bank of India (RBI) on Wednesday directed them to have at least two wholetime directors.
Lenders that do not meet the requirement will have to submit the names for the RBI’s approval within four months.
Banks need prior approval from the banking regulator for the appointment of wholetime directors.
Some of the private sector lenders that do not have two wholetime directors are IndusInd Bank, TamilNad Mercantile Bank, CSB Bank, DCB Bank, Dhanlaxmi Bank, City Union Bank, Karur Vysya Bank, and South Indian Bank.
Among the wholly-owned subsidiaries of foreign banks, only SBM Bank has one wholetime director.
These banks have only their managing director and chief executive officer (MD & CEO) as wholetime director.
CEOs of TamilNad Mercantile Bank, Karur Vysya Bank, and SBM Bank have resigned, and the banks are in the process of appointing the new ones.
While payments banks and local area banks have been kept outside the purview of the RBI circular, the norm will be applicable to small finance banks.
There are a few small finance banks that do not comply with the latest norm.
The regulator has also asked banks to establish effective senior management teams to navigate ongoing and emerging challenges, given the growing complexities of the banking sector.
“Establishment of such a team may also facilitate succession planning, especially in the background of the regulatory stipulations in respect of tenure and upper age limit for MD & CEO positions,” the RBI said in its notification.
A CEO of a private sector bank told Business Standard on condition of anonymity: “Since this is an RBI mandate, we need to follow. We will immediately start working on shortlisting the names.”
The RBI said the number of wholetime directors should be decided by the board of the bank after taking into account factors such as the size of operations, business complexity, and other relevant aspects.
“In compliance to these instructions, banks that currently do not meet the minimum requirement as above are advised to submit their proposals for the appointment of WTD(s) under Section 35B(1)(b) of the Banking Regulation Act, 1949, within a period of four months from the date of issuance of this circular,” the RBI said.
Banks that do not already have the enabling provisions regarding the appointment of wholetime directors in their Articles of Association may first seek necessary approvals under Section 35B(1)(a) of the Act expeditiously, so as to be in a position to comply with the requirements under these instructions, the notification said.
In an interaction with the board members of public and private sector banks in July this year, RBI Governor Shaktikanta Das had emphasised the need for MD & CEOs to pay special attention to strengthening the governance and focus on the tripod of banking stability, consisting of compliance, risk management and audit functions.
