Uday Kotak may not face RBI hurdle for appointment in non-executive role as cooling-off period may not apply, say experts

Earlier, shareholders of Kotak Mahindra bank voted 99 percent in favour of Uday Kotak taking up as the non-executive non-independent director of the bank after he steps down as the MD and CEO.

Veteran banker Uday Kotak is unlikely to face hurdles in taking up the non-executive, non-independent director role after his tenure as managing director and chief executive officer ends, experts said.

This is because the three-year cooling-off period norm set by the Reserve Bank of India (RBI) for the reappointment of an MD, CEO or whole-time director (WTD) will not apply for non-executive positions, they said.

Earlier, there were reports that the central bank may be looking at Kotak’s appointment in the non-executive role post his tenure as CEO.

Also read: Uday Kotak to transition to non-executive role after CEO tenure at Kotak Mahindra Bank

“As per the RBI circular dated April 26, 2021, the requirement of the three-year cooling period is for MD and CEO and whole-time director, and Kotak Mahindra Bank in its meeting has proposed to appoint him as non-executive director and, therefore, the cooling-off period is not applicable,” said Pradeep K Jain, managing partner, Singhania & Co, a Delhi-based law firm.

"I do not think it was the intention of the RBI to require a cooling-off period for NED (non-executive director) otherwise it would have mentioned it in the circular itself," Jain added.

A senior banker who didn't want to be identified too said there is unlikely to be a conflict of interest in Uday Kotak's case and, hence, the three year cooling-off period may not apply. "However, the RBI shall be the final arbiter of the matter,” the banker added.

On April 21, 99 percent or 9,986 shareholders of Kotak Mahindra Bank voted in favour of Uday Kotak taking up the non-executive, non-independent director’s role at the bank after he steps down as MD and CEO.

Also read: Who will take Uday Kotak’s job?

Kotak Mahindra Bank did not respond to a specific question from Moneycontrol on whether the bank has sought the central bank’s permission for Kotak’s reappointment in the non-executive role. A separate email sent to the RBI too did not elicit any response till the time of filing this copy.

What do the RBI regulations say?

According to an April, 2021, RBI circular, the MD and CEO or WTD of a bank must undergo a three-year cooling-off period post their tenure, during which the individual cannot not be appointed or associated with the bank or its group entities in any capacity, either directly or indirectly.

Experts, however, point out that the central bank rules do not mention anything about top executives seeking reappointment as board members after retirement. “So this is the area where Kotak Mahindra Bank will play up if any regulatory things pops up,” another banker said.

JN Gupta, former executive director of markets regulator Securities and Exchange Board of India, too said Kotak's appointment is unlikely to face pushback from the RBI.

According to Gupta, the central bank will not examine the appointment as it is in the existing framework of law. “What is interesting to note is such a law existed in only extremely weak economies where banking supervision is weak, which is not the case here. It is as per the provisions of the RBI circular and within the power of the bank,” Gupta added.

Uday Kotak, who has led the bank for more than 26 years as the CEO, is set to hang up his boots later this year. He founded Kotak Capital Management Finance as an investment and financial services company in 1985. In February 2003, Kotak Mahindra Finance received a banking licence from the RBI.

Uday Kotak's tenure as the CEO and MD of the bank will come to a close on December 31, 2023. According to Bloomberg, in February 2023 the bank roped in Egon Zehnder, a global talent search firm, to find a new chief.