The top bosses at Indian public sector banks can now hold office for a maximum of 10 years as the policy has been amended to extend their tenure for up to five more years, the government said on Friday. The appointment of whole-time directors and managing directors will initially be for five years and can be extended for another five years. Until now, there was no specific cap on the term of directors after the initial five-year appointment.
The government will also consider if a similar extension of tenures is needed for the top management at the State Bank of India
(SBI), they said. SBI officials have clarified that the amended policy does not apply to it yet as there is a separate SBI Act and that it would have to be notified separately.
The policy change comes as there was an “immediate and imminent” need in nationalised banks for extended tenures with many executive directors (EDs) nearing retirement, the government sources cited above said. They added that the government doesn’t want to lose the talent pool of current EDs. Private sector bank MDs already enjoyed a similar kind of extension rule, so the latest rule change brings parity to the bank MD role.
The government's decision would help banks retain the talent who rise to the ladder of whole-time directors at a very early age of 45-50 years.
For the policy change, the government has made an amendment to the Nationalised Banks (Management and Miscellaneous Provisions) Scheme, 1970. The updated guidelines came into effect on November 17.
Earlier, the MD or executive director of a public sector undertaking (PSU) bank was eligible for a maximum tenure of five or 60 years, whichever was earlier. This is also applicable to whole-time directors of all Central Public Sector Enterprises (CPSEs).
As per the amended policy, the person shall hold office for an 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 re-appoint them after consultation with RBI.
Experts have welcomed the move saying the longer tenure of the top brass in public sector banks can enhance operational efficiency and better balance sheet. Better accountability will lead to more confidence among investors, they said.
With inputs from Abhishek Kothari