RBI cap on CEO tenure to hit Kotak Mahindra Bank most

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June 13, 2020 12:10 AM

Macquarie Securities also said that guidelines were a big negative for Kotak Mahindra Bank as Uday Kotak, being the promoter of the bank, has already served 10 years as CEO/whole time director.

Morgan Stanley in its report said that Kotak Mahindra Bank would have to undergo a CEO transition if the discussion paper is finalised in the current format.Morgan Stanley in its report said that Kotak Mahindra Bank would have to undergo a CEO transition if the discussion paper is finalised in the current format.

Private lender Kotak Mahindra Bank will be impacted most, if Reserve Bank of India (RBI) limits tenure of chief executive officer (CEO), as per discussion paper released by the regulator, brokerages said in their report.
Morgan Stanley in its report said that Kotak Mahindra Bank would have to undergo a CEO transition if the discussion paper is finalised in the current format.

Macquarie Securities also said that guidelines were a big negative for Kotak Mahindra Bank as Uday Kotak, being the promoter of the bank, has already served 10 years as CEO/whole time director.

Similarly, Jefferies said, “The current joint managing director (MD) of Kotak Mahindra Bank Dipak Gupta could be a prospective internal successor of the private lender.”

Brokerage reports also said that guidelines will not have impact on any other large bank. “None of the other large private sector banks will have an issue and HDFC Bank anyway is seeing a CEO transition soon,” Macquarie Securities said. However, there will be impact on other small private lenders.

Jeferries report mentioned that AU Small Finance Bank CEO Sanjay Agarwal will have 7 years of tenure left as per new norms of RBI. “The banks with professional CEOs like Bandhan Bank, Federal Bank and RBL Bank may have 5-10 years of residual tenure,” Jeferies said.

In a bid to overhaul corporate governance in banks, Reserve Bank of India (RBI) had suggested to separate ownership from management and limit tenure of promoter-chief executive officer (CEO) to 10 years and non-promoter CEO to 15 years in a discussion paper released on Thursday. The regulator had also said that CEOs of banks need to retire by the age of 70 years.

The age limit of 70 has been kept even for non-executive directors and chairman of the bank.The banks can send their comments to RBI on the discussion paper by July 15, 2020.

The discussion paper of the central bank comes after fallout of entities like Yes Bank where several questions were raised on the corporate governance of the bank. Rana Kapoor founded Yes Bank in 2004 and remained MD & CEO of the bank till 2018. Currently, Rana Kapoor is under investigation by Enforcement Directorate (ED) and Central Bureau of Investigation (CBI) for related party transactions under his tenure.

Amit Tandon, founder and MD, IIAS said, “Fixing tenures by being prescriptive is RBI’s way of acknowledging that they have failed in their supervision role.” If they were genuinely monitoring banks, they could take each call on a CEOs reappointment based on the merits and not put term limits, he further said.

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