The matter was discussed at a meeting involving the RBI, government officials and representatives from the NBFC sector at the department of financial services on February 26.
While Section 10 of the Banking Regulation Act mandates banks to follow the rotation policy at the top management and staff levels, there is no such guideline for NBFCs.
“With regard to policy on leadership rotation at NBFCs, RBI submitted that Section 10 of the BR Act specifically speaks about the said governance policy for banks but not for NBFCs. As it is a statutory issue, RBI apprised that the policy in this regard for upper layer NBFCs is under consideration,” reads the minutes of the meeting. ET has reviewed the minutes of the meeting.
The RBI did not respond to an email seeking details of the plan.
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Mandatory leadership and staff rotation policies in Indian banks are primarily driven by central bank guidelines and Central Vigilance Commission (CVC) directives, aimed at ensuring operational transparency, reducing fraud risk, and enhancing corporate governance. The tenure limit for managing directors in public and private sector banks is 10 and 15 years, respectively.
In effect, the heads of public sector banks rarely get a full five-year tenure. By contrast, the Reserve Bank of India grants private bank chiefs an initial five-year term, reviewing it when boards seek extensions for incumbents. For NBFCs, there is no such norm in place.
Upper layer NBFCs are systemically important entities characterised by a large asset base, as identified by the Reserve Bank of India for increased regulatory scrutiny and intensive supervision. They are subjected to stricter regulations compared with smaller non-bank lenders.
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Among the upper layer NBFCs, Bajaj Finance, LIC Housing Finance, Mahindra & Mahindra Financial Services, PNB Housing Finance and Shriram Finance are deposit taking, while the non-deposit-taking list includes Aditya Birla Finance, Cholamandalam Investment and Finance Company, L&T Finance, Piramal Capital & Housing Finance and Tata Capital.
The issue of transforming NBFCs into universal banks was also discussed at the meeting.
The Reserve Bank of India representatives said that the licensing guidelines for universal banks provide a path for non-banking financial companies to transform into banks. “The only issue is the corporate ownership (promoter shareholding to be below 40% of paid up capital and to be further reduced to 26% within 15 years) and there is no change in RBI’s stand on this aspect,” said the minutes of the meeting.
It was attended by NBFC industry representatives, microfinance sector self-regulators, officials from the department of revenue, and officials from the Pension Fund Regulatory and Development Authority.