Pvt banks told to appoint part-time chairmen

Move blocks UTI Bank's plan to retain P J Nayak as executive chairman.

The Reserve Bank of India (RBI) has directed all large sized private sector banks to appoint a part-time chairman and a separate chief executive officer and managing director to conduct day-to-day affairs.

The communication, sent on May 24, comes in the wake of UTI Bank seeking the central bank's approval to retain chairman and managing director P J Nayak at the helm by appointing him as executive chairman.

The bank was slated to seek shareholders' approval this Friday to the move, which was a response to the RBI seeking a split of the post of chairman and managing director.

The RBI had earlier rejected the bank's proposal to give Nayak a two-year extension as chairman and managing director. Nayak, on his part, had preferred to retire rather than accept any truncated responsibility at the bank, which he has been heading since January 2000.

The RBI circular states, "All private sector banks are advised to play this communication before their boards and confirm taking required action. As per the recommendations of the Ganguly Committee report on corporate governance all large-sized private sector banks require to have a part-time chairman and a separate chief executive officer and managing director to conduct day-to-day management of the bank.''

The central bank has asked banks to table and correct the memoranda of association to this effect, said a banking source.

S B Mathur, administrator, SUUTI, in an earlier interaction with Business Standard, had said, "The Reserve Bank of India had conveyed that P J Nayak could either be appointed as chairman or managing director. Hence, the board has decided to appoint Nayak as wholetime chairman. In future, when the bank becomes bigger we can consider appointing a managing director or deputy managing director.'' He was not, however, not available for comments today.

A senior RBI official said, "We had asked the bank to split the position to ensure that the management and the governance of the bank is not run by a single individual. This is in keeping with the corporate governance norms. You cannot have one person running the day to management of the bank and also chairing the board.''

"The (RBI's) decision depends on shareholders. However, the bank board should actively consider appointing a managing director at a later date or three executives should be given the charge to take day-to-day decisions and governance should be left to the chairman. The bank will have to work a way out,'' said the RBI official.

New generation private sector banks such as ICICI Bank, HDFC Bank, Centurion Bank, IndusInd Bank among others have a non executive chairman and a chief executive officer. The only private sector bank that has a executive chairman and managing director was UTI Bank.

This time the RBI was in no mood to make an exception and this could be a big blow for UTI Bank as the bank is going through a critical phase. The next two years will be critical for the bank as it is going through a rebranding exercise and is entering new businesses.