Examine the role of the RBI in ensuring sound corporate governance in private sector banks. Are the existing tenure and approval norms adequate?

Under Section 35B of the Banking Regulation Act, 1949, a private bank cannot appoint, re-appoint or remove its MD & CEO without the RBI's prior approval [1]. This makes the RBI the gatekeeper of bank governance. Recent events show, however, that its norms check individual candidates better than they check boardrooms.

Role of the RBI

• Approving leaders: The RBI must approve appointments and changes in pay. For example, it approved Anup Bagchi as HDFC Bank's MD & CEO for three years from 27 October 2026 [1][2].
• Tenure limits: The 2021 circular caps an MD & CEO's tenure at 15 years, with a three-year cooling-off period. It caps promoter-CEOs at 12 years and sets a retirement age of 70 [3].
• Board structure: The same circular sets rules for key board committees and for the role of independent directors [3].
• Powers to correct: The RBI can remove managerial staff (Section 36AA) and appoint a chairman (Section 10BB) [1].
• Policy direction: The RBI's Discussion Paper on Governance (2020) pushed for independent boards and for keeping ownership separate from management [4].

Are the norms adequate?

Strengths

• The 15-year cap and cooling-off period stop "CEO-for-life" entrenchment. The age limit forces leadership renewal [3].
• The RBI can approve shorter terms than the five-year legal maximum, as with Bagchi's three years [1][2].
• Approval in advance allows smooth handovers. Bagchi takes charge the day after his predecessor retires, so a systemically large bank keeps running without a gap [2].

Gaps

• It checks the person, not the boardroom: Fit-and-proper scrutiny looks at the candidate. It does not test board culture. Recent board-level exits at a large private bank, which pointed to unspecified "practices", left depositors guessing.
• No referee for chairman–CEO clashes: Section 10B gives management to a whole-time MD [1]. The law does not say how disputes with a part-time chairman are settled.
• Boards investigate themselves: Inquiries ordered by the board into allegations against that same board convince the market less than an independent supervisory review would.
• Weak disclosure: The Kotak Committee called for detailed reasons when independent directors resign, and for separating the chairperson and MD roles [5].

Conclusion

The RBI's tenure and approval norms have curbed entrenchment and kept successions orderly, but they are necessary rather than sufficient. Three steps would complete them:

• an automatic RBI review when an independent director resigns over ethics concerns
• a clear split between the chairman's and the CEO's powers, in line with the Kotak Committee
• regular assessments of how well boards work

Together, these would protect depositors' trust and advance SDG 8.10 (stronger domestic financial institutions).