RBI said on Friday that 10 years were adequate time for a promoter, or a major shareholder of a bank, as WTD or CEO, to stabilize its operations and transition the leadership to a professional management.
Kotak Mahindra Bank may be affected more among leading private banks as Uday Kotak has held the post of CEO since inception, said a Jefferies note. Kotak’s current term expires in December 2020.
“So, if the norms are implemented as is, and notified by September 2020, his term may expire in September 2022 or April 2023 and, Dipak Gupta, who is the joint managing director at present, could be a prospective internal successor,” said Jefferies. There is some ambiguity on the timeline, because in one place the report said that it was applicable from the date of issue, which could be September 2020, and in another place it said it could be within six months of issuance or April 2021, whichever is later, it added.
Kotak Mahindra Bank will have to undergo a CEO transition if the discussion paper is finalized in the current format, Morgan Stanley analysts said.
“This could imply a potential CEO change at Kotak Mahindra Bank in around two-three years based on the discussion paper,” the Morgan Stanley report said. The bank’s stock price could show some volatility in response to this, but the outlook on the bank should not be significantly affected, given the strong management and a strong balance sheet and liability franchise, it added.
Macquarie Research said the RBI, in the past, has had a bad experience with promoters of Global Trust Bank, Bank of Rajasthan, Yes Bank, and many such promoter-sponsored banks, and is thus recommending a 10-year tenure for the promoters to safeguard the financial institution.
“However, there is always an exception to the rule in our view. Uday Kotak has run the bank in an exemplary way. He could have been the CEO for another 9 years (born 15 March 1959), but his tenure could be cut short to less than 3 years with effect from today assuming the RBI’s draft guidelines become final with no changes and April 2021 is the date when these guidelines would be applicable (Kotak will have time till April 2023 to appoint a successor for the bank),” said Macquarie.
Other promoter CEOs who could be impacted due to the plan include Sanjay Agarwal, managing director and CEO of AU Small Finance Bank, who has time till 2027 as he was appointed in April 2017.
Among non-promoter CEOs, Chandra Shekhar Ghosh, who has completed five years as CEO of the Kolkata-based Bandhan Bank, will have 10 more years before his term comes to end in 2030. Shyam Srinivasan, MD and CEO of Kerala-based Federal Bank, and RBL Bank MD and CEO Vishwavir Ahuja will have time till 2025, as both officials have completed a decade in their roles as chief executives, considering that non-promoter CEO’s terms will be limited to 15 years, according to RBI’s plan.
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