Friday, June 01, 2007

RBI to private banks: don't act smart

This is a follow up to earlier post, UTI Bank: running circles around RBI. I had mentioned that the RBI had decline to approve P J Nayak's appointment as Chairman and Managing Director, saying nobody could combine the two roles. UTI Bank's board responded by designting Nayak as Executive Chairman. Going by a BS report, it looks as though the RBI is not buying.

The Reserve Bank of India (RBI) has directed all large sized private sector banks to appoint a part-time chairman and a separate chief executive officer and managing director to conduct day-to-day affairs.

The communication, sent on May 24, comes in the wake of UTI Bank seeking the central bank’s approval to retain chairman and managing director P J Nayak at the helm by appointing him as executive chairman

The RBI's circular makes sense. The regulator is saying: the governance and operating functions in a bank are different, please don't combine the two. Having an executive chairman may seem like a smart move but it doesn't really meet the RBI's stipulation.

Now what? Is UTI Bank going to have an MD in addition to an executive chairman?

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