HDFC Bank is already looking for a new CEO, but RBI's proposed limit to tenure is a threat to Uday Kotak

HDFC Bank is already looking for a new CEO, but RBI's proposed limit to tenure is a threat to Uday Kotak
Kotak Mahindra Bank's CEO Uday KotakBCCL
  • The Reserve Bank of India (RBI) has proposed limiting the tenure of bank CEOs to no more than than 15 years in a new discussion paper to strengthen private banks.
  • HDFC Bank's CEO Aditya Puri is already on the hunt for his successor after a 26-year stint.
  • Kotak Mahindra Bank’s CEO Uday Kotak looks like he’s the only one who may get caught on the cross-hairs after already having been at the helm for 17 years.
The Reserve Bank of India (RBI) has issued a discussion paper that proposes limited the tenure of promoter-chief executives and even non-promoter CEO.

HDFC’s managing director and CEO, Aditya Puri, would have borne the brunt of new proposed regulations had the hunt for his successor not already been in progress. He’s has been at the helm of HDFC for since 1994 — that’s a tenure of 26 years.

However, Uday Kotak, the CEO of Kotak Mahindra Bank won’t be able to enjoy the same privilege. Of the top 10 private banks in India, he now has the most to lose.

BankCEODate of appointment
HDFC BankAditya Puri1994
Kotak Mahindra BankUday KotakFeb 2003
Federal BankShyan SrinivasanSep 2010
South Indian BankVG MathewOct 2014
ICICI BankSandeep BakhshiOct 2018
J&K BankRK ChhibberJun 2019
Axis BankAmitabh ChaudharyJan 2019
Yes BankPrashant KumarMar 2020
IndusInd BankSumant KathpaliaMar 2020

In its paper, the RBI suggests that the tenure of promoter CEOs should be limited to 10 years. Non-promoter CEOs should also only be allowed to stay on for no more than 15 years. Once the tenure is over, the RBI has given leeway for around two years allowing banks to appoint a successor — once the rules are finalised.

“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 or CEOs,” RBI said in the discussion paper.

If CEOs want to return to the helm, they will have to wait it out for three years before they can be reappointed.

What does this mean for Uday Kotak?
Uday Kotak, who has been Kotak Mahindra Bank’s executive vice-chairman and managing director since its inception in 2003-04, was re-designated as managing director and CEO in May 2018. That culminates in a total of 17 years that Uday Kotak leading the bank.

If RBI’s new guidelines come into effect, Kotak may get another two years to name his successor. The brokerage firm Jefferies believes the most likely candidate for the position is Dipak Gupta, the current joint managing director.

Uday Kotak has been in the midst of another stalemate with RBI to bring his stake in the bank down to 26%. Earlier in June, he sold off 56 million shares through a block deal, bringing his promoter stake down to 26.1% ⁠— after multiple extensions to the initial December 2018 deadline set by the RBI. However, he still has to trim around 0.1% in order to comply with RBI’s guidelines.

RBI’s new regulations come after controversies led by Yes Bank, the Bank of Rajasthan and other promoter-sponsored banks have faced trouble in the recent past. Limiting the tenure of promoter-chief executives could be its way of safeguarding the interests of financial institutions.

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