Long-serving chief executive officers (CEOS) at DCB Bank, RBL Bank and Federal Bank will now have to focus on succession planning after the regulator this week capped their tenures at 15 years.

DCB Bank CEO Murali Natrajan has completed 12 years in the job and got a year’s extension this month. Federal Bank CEO Shyam Srinivasan will complete 11 years in September when his second consecutive one-year extension ends.

RBL’s Vishwavir Ahuja also completes 11 years in June and is awaiting the Reserve Bank of India (RBI) nod for another three year term after the bank’s board approved such a proposal in January. Federal Bank and RBL boards have sought three-year terms for their CEOs. It remains to be seen whether the RBI will give this extension, which is within the 15-year limit.

‘Yes Bank Impact”
The regulator’s directions on limiting CEO tenures come after the publication last summer of a discussion paper that had sought a review of the governance framework at commercial banks. A bank CEO who is also a promoter or major shareholder cannot hold these posts for more than 12 years, the revised RBI rules said.

Analysts said the RBI move is a reaction to the Yes Bank crisis.

“I call this the Yes Bank impact,” said Asutosh Mishra, head of research, Ashika Stock Broking. “After such a big crisis, the RBI wants to be seen as taking some corrective measures and it has, rightly or wrongly, attributed the failures to powerful CEOs who override the boards, posing systemic risks.” Mishra, however, said that longer executive tenures have also helped build world-class banks, with adequate checks and balances in place. “One can argue that for every Rana Kapoor, there is an Aditya Puri, who built a world-class institution in his 25 years as CEO. But this is now a regulatory call,” Mishra said. Puri was the founding CEO at . HDFC Bank, now India’s most valuable lender.

Currently India’s longest-serving bank CEO Uday Kotak still has almost three years at the top at Kotak Mahindra Bank despite being in the corner room for 18 years at the institution. Kotak, Asia’s richest banker, was granted a full three-year term in December.

Kotak’s tenure now ends on January 1, 2024, almost 21 years after he converted his non-banking finance company into a bank in 2003. The new norms do not apply to bank CEOs whose tenures have already been approved by Mint Road. “Banks with MDs & CEOS or whole-time directors (WTD) who have already completed 12 or 15 years as MD & CEO or WTD, on the date these instructions come into effect, shall be allowed to complete their current term as already approved by the Reserve Bank,” the banking regulator said. The chiefs at three large banks that saw leadership changes recently are also unaffected. ICICI Bank CEO Sandeep Bakhshi took over in October 2018, Axis Bank CEO Amitabh Chaudhry took charge in January 2019, while Puri’s successor at HDFC Bank assumed office in October 2020,

Bank executives said the new curbs on tenures reflect the central bank’s need to be seen to be taking corrective measures. s

What is the logic of 15 years and not 20 years? Who was ” accountable for regulatory oversight at Yes Bank for years when everyone knew the issues?” asked a bank executive who didn’t want to be named. “But who will ask the regulator the hard questions? It has found an easy solution to the problem and everyone has to go with it.”

CEOs can be reappointed in a bank after a mandatory three-year cooling-off period, during which the executive cannot be appointed or associated with the bank or its group entities in any capacity.

Bankers said the central “What is the logic of 15 years bank’s move could hurt and not 20 years? Who was stability at small and accountable for regulatory oversight at Yes Bank for years when everyone knew the -A bank executive medium private sector banks that require strong leadership and an understanding of the business to stand out in a competitive lending business. “One way to look at it is there will be new people with new ideas after 15 years, which is a positive. But was this move necessary when things are uncertain due to the Covid disruptions?” asked another bank executive. The central bank has also kept the retirement age for bank CEOs unchanged at 70.

In a related move, the RBI has directed that half the directors in banks be independent ones. It has also put an annual Rs 20-lakh ceiling on fees to be paid to independent directors.

The central bank also said that independent directors have to chair bank boards.

The role of independent directors is now critical,” said Rajesh Gupta of SNG Partners. “Banks are expected to appoint such qualified directors who can meet all the new requirements. The demand for quality independent directors is bound to go up as their role and responsibility is huge under the new rules.”

Some in the industry believe the RBI moves, including its orders on board composition, will encourage diversity.

This (RBI move) would provide a chance for a wider diversity mix to be built into the board and with wider expertise areas such as IT, audit, digital, new age economy,” said Srinath Sridharan, who earlier acted as a board member in the financial services industry. This is an opportunity for the private banks, especially small finance banks (SBFS), to improve the composition of their board committees”.