If the recent proposals by the Reserve Bank of India (RBI) to limit the terms of the Chief Executive Officers (CEOs) of private banks become a rule, HDFC Bank boss Aditya Puri’s record as the longest-serving private bank CEO will remain unbroken.
Puri has served as the CEO of HDFC Bank from 1994, meaning he has completed 26 years. Puri’s term is ending in October. The bank is yet to finalise a successor for the outgoing chief. The nearest contender to break Puri’s record is Kotak Mahindra Bank’s promoter and CEO, Uday Kotak, who has completed 17 years as bank chief. Kotak is the chief executive of Kotak Mahindra Bank since 2003-2004, when the bank started operations.
The RBI has proposed to limit the tenures of the promoters of private banks as CEOs and Whole Time Directors (WTDs) to 10 years if the person is from the promoter group and 15 years if from the non-promoter group. The RBI said it wants to do so “to build a robust culture of sound governance practice, professional management of banks and to adopt the principle of separating ownership from management, it is desirable to limit the tenure of the WTDs (whole-time directors) or CEOs.”
Also, the RBI has proposed to limit the upper age limit for CEO/WTDs of banks at 70 years. Going by this, Kotak had another nine years in the bank (he is currently 61). This would have meant that Kotak will match Puri’s tenure as CEO or even beat his record.
But, if RBI’s new proposals are cleared as guidelines, Kotak will have to end his term by 2022 or 2023.
Shyam Srinivasan, MD&CEO of Kerala-based Federal Bank and RBL Bank MD& CEO, Vishwavir Ahuja, both will have time till 2025 as both officials have completed a decade in their roles as chief executives. Similarly, Chandrashekhar Ghosh of Bandhan Bank has completed five years as CEO of the Kolkata-based bank, meaning he will have ten more years (non-promoter CEOs are allowed for 15 years), before his term comes to end, which is 2030.
The RBI has promised two years, or till the expiry of their tenure, whichever comes later, to the whole time directors and CEOs from the date of guidelines to identify a successor. After their tenure comes to an end, the CEOs/WTDs need to wait till the expiration of three years before re-appointment. “During this three-year period the individual shall not be appointed or associated with the bank in any capacity, either directly or indirectly, advisory or otherwise,” the RBI said.
Earlier in 2020, Uday Kotak and RBI had a court battle over Kotak's promoter stake holding in the bank. The RBI norms stipulated that Kotak had to pare promoter stake below 20 percent before December 31, 2018 from around 30 percent.
To achieve compliance, in August 2018, the bank announced the completion of perpetual noncumulative preference share issue (PNCPS), which it interpreted as cutting the promoter stake to 19.7 percent. The bank claimed it is complying with the RBI licencing norms through this deal. But here the RBI posed a question.
The regulator said preference share allotment route wasn’t sufficient to meet promoter dilution rule requirement. But the bank’s legal argument was PNCPS was part of the paid-up capital. With the impasse continuing and the deadline for stake dilution fast approaching, KMB finally decided to move the High Court of Bombay. In January, the RBI let KMB retain the 26 percent promoter stake with some riders.
The RBI said the promoters, Uday Kotak and family, while retaining 26 percent stake, need to cap the voting rights at 15 percent by April. KMB withdrew the case subsequently and some interpreted this as a win for Uday Kotak. In June, Kotak sold 5.6 crore shares for more than Rs 6,900 crore in a block deal, bringing down his stake to 26.1 percent, inching closer to the RBI’s stipulated level.
While this was an out-of-court settlement, some interpreted this as a win for Kotak at the end of the bitter court battle. It is an irony that under the proposed CEO-term rules of the central bank, Kotak is the worst hit private bank promoter.
Also, it is worth noting that the RBI has set up an internal group to review the ownership and control of private banks.
The internal working group will examine and review the extant licensing and regulatory guidelines relating to ownership and control, promoters’ holding, requirement of dilution, control and voting rights, etc, the RBI said. The working group comprises Prasanna Kumar Mohanty, Director, Central Board of RBI, Sachin Chaturvedi, Director Central Board of RBI, Lily Vadera, Executive Director, RBI, SC Murmu, Executive Director, RBI, Shrimohan Yadav, Chief General Manager, RBI, the central bank said in a release on June 12.
It is likely that the RBI group will relook at the promoter holding which means that existing promoters will have to yet again tweak their stake holdings in the respective banks yet again.
Source:- moneycontrol.com