RBI asks private banks to have at least two whole-time directors: Explained

The Reserve Bank of India has directed private sector banks and wholly-owned subsidiaries of foreign banks to have at least two whole-time directors in addition to the MD and CEO

The Reserve Bank of India (RBI) on Wednesday directed private sector banks and wholly-owned subsidiaries of foreign banks to have at least two whole-time directors in addition to the managing director and chief executive officer. The RBI further said that banks that do not have two executives as directors will have to submit proposals for the same within four months.

The banks also need prior approval from the RBI to appoint whole-time directors.

In a circular, the RBI stated: "Given the growing complexity of the banking sector, it becomes imperative to establish an effective senior management team in the banks to navigate ongoing and emerging challenges."

Who is a whole-time director?

A whole-time director (WTD) is appointed by the board of directors to hold a specific position within the company, such as a chief financial officer (CFO) or a chief operating officer (COO). A whole-time director has specific responsibilities assigned by the board of directors.

What will be the tenure of a whole-time director?

A whole-time director is a member of the board and can be appointed by the shareholders of the company. A whole-time director may be appointed for up to a period of five years. At any given time, a whole-time director can be removed by the board, with or without cause, by a majority.

He/she has a fixed term of office, which is specified in the company's bylaws and can also be re-appointed for additional terms.

What is the role of a whole-time director?

A whole-time director has the authority and power to make decisions and even take actions on behalf of the company in the specific area of responsibility assigned by the board of directors.

A whole-time director can take decisions and actions within the specific area of responsibility assigned by the board but may not have overall responsibility for the company's performance. A whole-time director is accountable to the board for the performance in the specific area of responsibility assigned to him/her.

The role typically includes oversight and governance in the company.

Is a whole-time director a shareholder in the company?

A whole-time director may or may not be a shareholder of the company but is not required to hold shares in the company to be appointed as a WTD. 

How many whole-time directors can be appointed in a company?

A company can have a maximum of 15 directors.

No company shall appoint a person as a whole-time director who is:

-A fraudulent borrower or has been adjudged as an insolvent

-Has, at any time, been sentenced of an offence by a court and sentenced for a time exceeding six months

-is under 21 years old or is beyond 70 years old

-has suspended payments to their creditors