The debate over the succession of leadership in the boardroom is always borderline controversial, and has now gained new legs, thanks to an announcement made by Uday KotakCEO and Vice President Kotak Mahindra Bank, It promises to focus some laser-sharp questions on regulator reserve as well bank of india (RBI).
The genesis of Kerruffle dates back to an analysts’ conference where Kotak introduced his son Jay as the new co-head of the bank’s digital initiatives, combining the young executive’s three-year experience with the current chief’s 17-year career. aligns with. Jay’s three-year apprenticeship under the tutelage of UDAY’s trusted executive director Shanti Ekambaram is his merit. And, of course, a management degree from Harvard University.
Obviously, Uday’s announcement was followed by a lot of gossip and gossip, especially since the two were addressing each other as “my son” and “my father” at the convention. Advocates of youth promotion say youth can provide invaluable input to the bank’s digital business; Challengers are asking whether the appointment process was fair, evaluating Jay’s potential against other equally deserving contenders, or whether his family name was the only criterion.
To be fair, Ballyhoo may be a bit premature as Jay is still not part of the board or the core senior management group. So, technically, neither the RBI nor the Nomination and Remuneration Committee of the Board have any oversight of their posts, salaries or even their place in the management hierarchy. But, this sudden rise – in which a three-year-old is considered qualified to lead a business vertical – is being seen as a harbinger of a future succession strategy, where bloodline expertise, gray hair or even gray hair may be the cause. That will beat Vivek too.
Family is the basis for succession planning in corporate India, but it is rare in the Indian banking industry. City Union Bank at Kumbakonam N. There are exceptions to Kamakodi following his father as the CEO of the organization. Strange sight was seen during the time of Yes Bank founder and former CEO Rana Kapoor Blocked board appointments of co-founder’s family members. In the end, even Kapoor’s attempt to cling to his chair ended in indecent.
One more exception needs to be mentioned here: EY India, one of the big four accounting firms in India, is structured as a partnership firm, but the Indian managing partner, Rajeev Memani, succeeded his father Kashi Nath Memani and He has been at the helm of the firm since then. 2004. However he has a valid excuse: he is chosen by the other partners of the firm.
In the banking sector, however, appointments at the top level and succession depend entirely on the RBI’s approval. The central bank uses a vague criterion called the “fit and proper” criterion to approve appointments of both CEOs and board members. This vague and unspecified eligibility criterion – implied through appropriate legislation – gives RBI unquestionable latitude and discretion.
These discretionary powers allow for a better understanding of the exemptions granted to Uday Kotak, whether it is the maximum shareholding rule for him (his 26% versus mandated 15% in 12 years) or allowing him an extended tenure as CEO ( His 20 years) against the 12 years norm).
This is what informs all the speculation about whether the RBI will be ready to suspend or tweak its “fit and proper” benchmark for Jay Kotak when the crucial moment comes in the future. Although, to be fair, it may be a bit premature to even consider that possibility now. Much will also depend on the composition of Kotak Mahindra Bank’s board at that time and its ability to exercise existing corporate governance norms.
Importantly, the RBI is not the only beneficiary of this open-ended fit-and-appropriate situation. This section provides an entry point for the political class in Delhi and various state capitals. The financial sector is an important conduit for campaign finance, and political capture of key positions within the banking system – be it chief executive officers of banks or directors on banks’ boards – play an important role in India’s electoral politics. This politico-economy reality also plays on a major asymmetry in the Indian banking system: the appropriate and appropriate criterion applies only to private sector banks. In public sector banks, the government, as the main shareholder, has absolute and undisputed authority over the appointment of bank presidents, chief executive officers and executive directors. RBI has little or no say in the matter.
With limited autonomy at its disposal, the RBI will have to choose its battle. Given the government’s ability to influence appointments in the central bank, including promotions to senior positions or extension of tenure, the RBI sometimes succumbs to government pressure to relax rules; It is often forced into commercial banks to ignore unscrupulous acts until it is too late.
For example, it is well known how the RBI was forced, at the turn of this millennium, to relax its rules for a particular case of mergers and restructuring in the banking sector, due to political pressure from New Delhi. Several cases of past bank failures demonstrate the light touch approach of the RBI in the long run, until institutions are on the verge of collapse; This may initially sound vague, but when viewed against the political influence that informs the nature of CEO appointments or board structure it is completely understandable.
Corporate governance norms are still a work in progress in India’s banking sector. The ability of the banking sector to overcome many of its past vulnerabilities – such as huge loan defaults, or low productivity – will depend a lot on how both the RBI and the government decide on future governance models. And it should include succession norms in private banks.