What safeguards does the RBI's 'fit and proper' criteria provide against governance risks in private bank management?

Under Section 35B of the Banking Regulation Act, 1949, no appointment, re-appointment or termination of a bank's MD & CEO or whole-time director takes effect without Reserve Bank approval [1]. The 'fit and proper' criteria operationalise this power — screening integrity, competence and independence as a continuing test, not a one-time clearance.

Gatekeeping at entry

• The board only proposes; RBI vets and approves. HDFC Bank's board accordingly forwarded two names in order of preference, with proposed remuneration, to RBI in September 2026 for its next MD & CEO [5]. This external veto guards against promoter or insider capture of the top post.
• Following the Ganguly Committee norms, a declaration and undertaking and a Deed of Covenant are obtained from directors, creating a verifiable record of qualifications, defaults and conflicts of interest [3].
• A Nomination and Remuneration Committee of non-executive directors must conduct due diligence before names are proposed [2].

Continuing safeguards against concentration of power

• RBI's 2021 governance directions cap MD & CEO/WTD tenure at 15 consecutive years (12 for promoter-MDs), with a three-year cooling-off and an age ceiling of 70 [2] — limiting entrenchment and personality-driven banking. The incumbent's decision not to seek a fresh term reflects this discipline [5].
• The board Chair must be an independent director, with independent-majority audit and risk committees [2], insulating oversight from management.
• The test extends to shareholders holding 5% and above, keeping ownership well diversified and blocking unsuitable control [4].
• Because status is assessed on a continuing basis, RBI can seek removal — a deterrent against related-party lending and evergreening.

Limitations

• Largely disclosure-based, relying on bank-supplied information; rejections and rankings are not made public, weakening accountability.

Fit and proper thus supplies a layered filter — entry vetting, tenure limits, independent oversight — that converts succession into a regulated, institutional process. Strengthening it with time-bound decisions, reasoned disclosure and board-level succession planning would align private banking with depositor protection and financial stability, the core purpose of banking regulation.