Money & Banking

Small banks must have an executive director in addition to MD and CEO, say experts

K Ram Kumar Mumbai | Updated on October 08, 2020

The Reserve Bank of India (RBI) must ensure that even small- to mid-sized private sector banks have an Executive Director in addition to the Managing Director and Chief Executive Officer so that in case the latter retires or is ousted, the day-to-day affairs of the bank can be conducted without a hitch, say banking experts.

Recent developments at Lakshmi Vilas Bank (LVB) and Dhanlaxmi Bank (DLB) underscore the importance of having one more Executive Director on the board who can handle the functions of the MD and CEO.

Committee of Directors

The day-to-day affairs of the aforementioned banks are now being handled by a three-member Committee of Directors (CoD), following the shareholders rejecting the resolution seeking the appointment of MD and CEO.

LVB shareholders had rejected the resolution seeking the appointment of S Sundar as Managing Director and CEO (interim), with 60.6 per cent of the votes polled being against it at the annual general meeting held on September 25.

Similarly, DLB shareholders rejected the resolution seeking the appointment of Sunil Gurbaxani as MD and CEO, with 90.488 per cent of the votes polled being against it at the annual general meeting held on September 30.

Banking expert V Viswanathan opined that having an Executive Director in addition to MD and CEO will ensure that a bank’s business and daily functions are carried out without hindrance.

He emphasised that since independent directors were not involved in operational matters earlier, they might take more time to convey their decisions if they have to exercise the powers of the MD and CEO.

“Issues of corporate governance/ conflict of interest might arise since their independence in the board is compromised to the extent that they are part of executive decisions and operational matters,” explained Viswanathan.

S Ravi, Practicing Chartered Accountant, observed that the Reserve Bank of India must give directions to all bank managements to have at least an Executive Director who is a ‘key managerial personnel’ so that he/she can step in to lead the bank if the need arises.

In this regard, Ravi emphasised that all public sector banks and large private sector banks have Executive Directors who can discharge the functions of the MD and CEO.

Published on October 08, 2020

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