44: RBI wants bank promoters to learn to let go

 The Reserve Bank of India has proposed changes that seek to strengthen the governance in India’s private sector banks. The regulator wants the tenure of whole-time directors and chief executives of a bank to have a ceiling. For an executive who is also the promoter of the bank, the tenure limit would be 10 years. For a non-promoter director and executive, the ceiling is 15 years. The regulator has also sought to strengthen the boards of banks by making them responsible of big decisions. The discussion paper comes after allegations on the CEO of a top private sector bank, ICICI Bank, and a near collapse of Yes Bank because of misdemeanors of its promoter and MD Rana Kapoor. The intention clearly is to safeguard the bank’s stability from wrong decisions of promoters and even professional executives. A long stint at a bank makes it easy for the MD and CEO to have disproportionate influence over decision making and at times over the board as well. The RBI has also sought to strengthen bank boards so that they can check against promoter influence. While it is just a discussion paper, the intention of the regulator is very clear. Experts believe that the RBI would soon bring out guidelines that will cap the tenure of private-sector bankers. Promoters such as Uday Kotak and even professional executives such as Aditya Puri of HDFC Bank will have to step down and give the reins to another banker. It is evident that banks will have to take their succession planning very seriously.