The Reserve Bank of India (RBI) has issued a directive requiring private and wholly-owned foreign banks operating in India to maintain at least two Whole-Time Directors (WTDs) on their boards. This mandate, which includes the positions of Managing Director and CEO, aims to ensure effective succession planning in response to the increasing complexity of the banking sector and regulatory guidelines on tenure and upper age limit.
The directive, identified as DOR.HGG.GOV.REC.46/29.67.001/2023-24, is based on earlier guidelines (DOR.GOV.REC.8/29.67.001/2021-22). It emphasizes the need for a resilient senior management team and stable corporate governance structures to tackle evolving financial challenges. Banks are required to determine the number of WTDs considering factors like operational scale and business complexity.
The RBI's move is designed to bolster long-term stability in the banking sector. Non-compliant banks have been instructed to submit proposals under Section 35B(1)(b) of the Banking Regulation Act, 1949 within a four-month timeframe. Furthermore, banks lacking provisions for WTD appointments in their Articles of Association are required to seek immediate approval from the RBI.
This directive underscores the importance of effective senior management, succession planning, and adherence to regulatory stipulations like tenure and upper age limit for MD&CEO positions. The alignment of corporate governance structures is also seen as crucial for the long-term stability of the banking sector.
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