Leadership succession in systemically important banks is a matter of financial stability. Discuss.

Domestic Systemically Important Banks (D-SIBs) such as SBI, HDFC Bank and ICICI Bank are treated as "too big to fail". Because of this, the RBI makes them hold extra capital. For HDFC Bank, the extra buffer is 0.40% of risk-weighted assets [1]. In such banks, the choice of leader and the way leadership changes hands are matters of public stability, not just a company's internal business.

Why succession matters for stability

• Confidence: Trouble at the top can unsettle depositors and markets. When HDFC Bank's part-time chairman resigned suddenly in March 2026, the RBI publicly confirmed that the bank remained well-capitalised with sufficient liquidity [2].
• Continuity: The CEO sets the bank's credit growth, risk appetite and compliance culture. A vacancy or a disputed handover stalls these decisions.
• Contagion: A D-SIB is tightly linked to the payments system, interbank lending and capital markets. Its distress can quickly spread to the rest of the system.

Existing safeguards

• Statutory vetting: Under Section 35B, Banking Regulation Act, 1949, no chairman, MD or CEO can be appointed, reappointed or removed without the RBI's prior approval. An outgoing MD can stay on until the successor takes over [3].
• Tenure caps: The RBI's 2021 governance circular limits an MD & CEO to 15 years and age 70, and requires an independent chair [4]. This forces planned succession and prevents leaders from becoming entrenched.
• Seamless handover in practice: The RBI approved Anup Bagchi as HDFC Bank's MD & CEO for three years from October 27, 2026, replacing Sashidhar Jagdishan [5]. The bank will not be without a leader.

Gaps and concerns

• Person-centric approval: The RBI's fit-and-proper test checks the candidate. It does not check whether earlier conflicts between the board and management have been resolved.
• Opaque exits: Vague reasons for a resignation leave markets to speculate.
• Chair–CEO ambiguity: The Uday Kotak Committee recommended separating the chairperson and MD/CEO roles to keep checks and balances at the top [6]. However, who decides what between the two is still not always clearly defined.

Way forward

• D-SIB boards should keep written succession plans, and RBI supervisors should review them every year.
• Directors who resign should disclose their reasons in detail, in line with the Kotak Committee's push for transparency [6].
• When directors raise governance concerns, the RBI should carry out its own supervisory review instead of relying only on inquiries ordered by the bank's board.

In a D-SIB, leadership succession is part of systemic risk management. India has a sound legal base for this in Section 35B and the 2021 norms. Adding planned succession, transparent disclosures and active RBI supervision would help these banks keep public trust and support stable, inclusive growth (SDG 8).