The union government has decided to increase the term of wholetime directors in public sector banks, including MD & CEOs, to 10 years, from five years, a move aimed to bring in younger talent in the top position.
A candidate can be appointed for 5 years initially, which can be extended for another five years, the government said in a Gazette on Thursday. This is also applicable for executive directors who are also wholetime directors.
“A whole-time Director, including the Managing Director, shall devote his whole-time to the affairs of the nationalised bank and shall hold office for such initial term not exceeding five years and extendable up to a total period, including the initial term, not exceeding ten years, as the Central Government may, after consultation with the Reserve Bank, specify and shall be eligible for re-appointment,” the notification said.
While the appointments are made by the appointment committee of the cabinet headed by the Prime Minister, the candidates are selected by a Financial Services Institutions Bureau – a body set up under the department of financial services, which replaced the Banks Board Bureau.
Since the Narendra Modi government came to power in 2014, none of the CEOs has been appointed for 5 years. Typically, the appointments are made for 3 years, and only a handful for an extension beyond their initial appointments. There have been many instances in the last 8 years that the tenure of the Md & CEO and also executive directors was not extended even if the candidate was eligible for extension. This meant top bosses of public sector banks had to hand up their boots much before their retirement age which is 60.
Since, the changes have been made in the Nationalized Bank Scheme, 1970, this is not applicable for State Bank of India.
According to bankers, public sector banks were losing talent to their private sector counterparts since there was uncertainty over their stay in a particular bank. The government may have addressed this concern by extending the tenure to 10 years, after which they can be reappointed again.
Last year, the Reserve Bank of India (RBI) decided to cap the tenure of managing directors (MDs) and chief executive officers (CEOs) of private sector banks at 15 year.