Puri, Sobti may take chairman's office if bank directors' age cap is raised

Alignment of bank directors' age limit with the cap of 75 years prescribed under Companies Act will help them retain board seats

The Reserve Bank of India (RBI) has been “informally sounded out” on whether it can look into the matter of increasing the age limit for directors on banks’ boards, currently pegged at 70 years, and align it with the Companies Act, where the prescribed age limit is 75 years.

Highly placed sources said back-channel communication had been initiated with Mint Road on the issue, and the development was significant as it came on the cusp of a hunt to find successors to IndusInd Bank Managing Director (MD) and Chief Executive Officer (CEO) Romesh Sobti and HDFC Bank MD Aditya Puri. At this juncture, their reappointment as MD and CEO is unlikely as the age cap of 70 years means Sobti and Puri cannot continue on the boards too – Sobti turns 70 on March 23, 2020, and Puri on October 26, 2020. If the age bar is raised to mirror what’s prescribed in the Companies Act, they can continue to remain as directors. 

“Their first preference would be to continue serving the bank in their current capacities as chief executives. However, should the RBI only relax the age bar on directorship in a bank, the two would contemplate assuming chairmanships in their banks,” said a source aware of the development. 
 

Both HDFC Bank and IndusInd Bank declined comment on the subject. 

Puri and Sobti have expressed interest to continue their association with their banks in the past. Suresh Ganapathy, banking analyst at Macquarie Capital, points out that in an analyst call, Sobti had raised the issue as to why directors should not serve beyond 70 years when the Companies Act permitted them to do so. In an interview with a TV channel earlier this month, he said he was quite happy to continue and still loved coming to work every day. 

As for Puri, “The current MD and CEO has indicated his interest in continuing beyond 2020, if the regulatory age bar is raised to 75 years from 70,” stated a note by Emkay Global Financial Services on HDFC Bank. 

As both CEOs are closely identified with the fortunes of the banks they helm, a sudden departure from the scene is felt to be undesirable. 
 

Puri, in fact, holds the record of being the longest-serving head of a private bank globally. The RBI had extended the retirement age of chiefs of private banks to 70 in September 2014 from 65 when the Companies Act, 2013, replaced the earlier one enacted in 1956. 

It also overrode the PJ Nayak Committee’s recommendation of 65 years. 

The case now being made is if an alignment could be done for private bank CEOs with the Companies Act, a repeat can be looked into for directors too. Incidentally, the age limit for chief executives and directors is by way of an RBI administrative fiat, and not under the proviso of an Act.

Besides RBI approval, both banks will also need shareholders’ nod to reappoint them as directors. Both HDFC Bank and IndusInd Bank hold their annual general meetings (AGMs) in June or July every year, where they can seek shareholders’ approval for their reappointment, subject to RBI nod, if it doesn’t come by then. This year’s AGM would be crucial for IndusInd to reappoint Sobti, which in any case depends on the age limit -- be it as MD and CEO or as a director. 

HDFC Bank has another year to approach its shareholders on Puri as the RBI had approved his appointment for two years as MD in October 2018.