Appointment of Whole Time Director

Posted On - 10 November, 2023 • By - Darshit Shah

Pursuant to paragraph 10 and 11 of DOR.GOV.REC.8/29.67.001/2021-22 dated 26th April 2021 on ‘Corporate Governance in Banks – Appointment of Directors and Constitution of Committees of Board’ –

(10) Subject to the statutory approvals required from time to time, the post of Managing Director (MD) & Chief Executing Officer (CEO) or Whole Time Directors (WTD) 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. 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.

(11) It is clarified that the extant instructions on upper age limit for MD&CEO and WTDs in the private sector banks would continue and no person can continue as MD&CEO or WTD beyond the age of 70 years. Within the overall limit of 70 years, as part of their internal policy, individual bank’s Boards are free to prescribe a lower retirement age for the WTDs, including the MD&CEO.

With the growing complexity of the banking sector, it is deemed important to establish an effective senior management team in the banks to navigate ongoing and emerging complexity of the banking sector.

The Reserve Bank of India (RBI) has issued a recent notification dated 25th October 2023 bearing no. RBI/ 2023-24/70 – DOR.HGG.GOV.REC.46/29.67.001/ 2023-24 to address the issues and challenges given the growing complexity of the banking sector. As per the recent amendments RBI has asked the commercial banks to ensure that there are at least 2 (two) WTDs on their boards. The bank’s board will determine the number of WTDs by considering many variables, including the scale of operations, complexity of the company and other pertinent features. The announcement instructed banks that do not presently have two WTDs on their boards to submit proposals for their appointment within a period of four months from the date of issuance of this circular. Establishing such a team may also make succession planning easier, specifically in the background of the regulatory stipulations relating to the term and maximum age for MDs and CEOs as stated by a banking sector regulator.

Notably, RBI had said in 2021 announcement that an existing MD & CEO or WTD may not hold the position for more than 15 years. This officeholder won’t be qualified for re-election until at least three years have passed since their last term. The central bank had made it clear that the person would not be appointed or connected to the bank of any of its group companies in any way during this three-year cooling – off period.