The Reserve Bank of India (RBI) has issued a mandate requiring private sector banks to appoint at least two whole-time directors (WTDs) in addition to the Managing Director (MD) and Chief Executive Officer (CEO). Banks failing to meet this requirement must submit proposals for compliance within four months.
Addressing Banking Sector Complexity
RBI has emphasized the growing complexity of the banking sector as the driving force behind this directive. Establishing a team of two WTDs, as per the central bank, will not only cater to this complexity but also facilitate succession planning. This is especially crucial in light of regulatory guidelines regarding tenure and upper age limits for MD & CEO positions.
Understanding the Requirement
It’s important to note that the RBI’s requirement of two WTDs includes the MD & CEO as whole-time directors. Therefore, banks lacking an executive director must either promote or appoint a senior banker to fill this role.
Board Autonomy
The RBI has granted banks the autonomy to determine the number of WTDs required, taking into account various factors like the scale of their operations, business complexity, and other pertinent considerations.
For banks that do not already have provisions regarding the appointment of WTDs in their Articles of Association, the central bank has made it clear that they must promptly seek RBI approval to incorporate these provisions.
This directive underscores the RBI’s commitment to enhancing governance in the private banking sector and ensuring that the growing complexities within the industry are appropriately addressed.
