RBI says 70 years upper age limit for private bank CEOs, whole-time directors
The change has been done in light of provisions in the Companies Act, 2013
Mumbai: The Reserve Bank of India (RBI) on Tuesday capped the maximum age at 70 years for a managing director, chief executive officer or whole time director in a private bank.
The change has been made to align the rules for private sector bank in line with the provisions of the new companies law, which says, “No company shall appoint or continue the employment of any person as managing director, whole time director or manager who is below the age of 21 years or has attained the age of 70 years,” RBI said in a notification on its website.
Previously there was no such age limit although no chief executive’s tenure was extended beyond 65 years. IndusInd Bank CEO Romesh Sobti, for example, was given only a year’s extension in January even though the bank’s board had recommended RBI for a three-year extension.
The RBI did not give any reason for the denial of a three-year extension but Sobti will turn 65 next year when his term ends on 31 January.
Confusion on what is the retirement age for CEOs also continued because a committee headed by former Axis Bank CEO P.J. Nayak had last year recommended that the age limit for bank CEOs should be capped at 65. With this notification, the RBI has clearly gone with the companies law.
The RBI’s move clarifies the age limit in private sector banks without doubt but it also means that existing CEOs at large private sector banks could have a long run at the top, said Ashvin Parekh, managing partner at Ashwin Parekh Advisory Services LLP, a banking consultancy firm.
“It means that old experience can be used for more time which is a positive. Some CEOs like Sobti from IndusInd and Aditya Puri from HDFC Bank Ltd can now seek a further extension and also younger CEOs can have an extended time at the helm of their respective banks,” Parekh said.
Like Sobti, Puri is widely credited for the success of HDFC Bank and was expected to retire from the bank in the next two years. The latest RBI notification means he can continue provided he has the support from his board.
The RBI’s notification does not mean that the current CEOs will automatically get an extension, according to Robin Roy, associate director, financial services, PricewaterhouseCoopers, a consultancy.
“This move probably gives some executives a few more years in the saddle but it will be wrong to assume that these executives will automatically get extensions because the bank board has to approve and then the final nod has to come from the RBI,” Roy said. “But yes, if the stakeholders approve, then there could be a few more years given. This makes it easier for the private banks to plan for the future and it is always good when the existing talent is available for some time more and if the experience can be used.”
Following this notification, nobody will be allowed to continue as a director in private sector banks beyond the age of 70. However, bank boards are free to prescribe a lower retirement age for whole time directors and CEOs as an internal policy, RBI said.
But it means that younger CEOs like Chanda Kochhar from ICICI Bank Ltd could get a much longer tenure than their predecessors.
Kochhar, who is 52 and has completed five years at the helm, could technically go on for another 18 years, beating her predecessor K.V. Kamath’s 13-year stint as chief executive between 1996 and 2009.
Continuation of such high-profile CEOs in their job for a longer term could be positive for these banks, said S. Ranganathan, head of research at LKP Securities Ltd.
“These CEOs are perceived favourably by investors,” Ranganathan said. “This is a positive move for this banks because it ensures continuity.”
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Business NewsIndustryBankingRBI says 70 years upper age limit for private bank CEOs, whole-time directors
First Published:9 Sep 2014, 03:39 PM IST
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