Finance company directors get regulator’s nod to serve beyond 70 years

• Maximum age of finance company directors capped at 75 years
• Difficulty in finding board-worthy candidates main reason

Finance companies can now opt to retain their directors who reach 70 years of age while serving in their respective boards as the Monetary Board has eased rules on the maximum age of a sitting director as companies scramble to fill vacant board seats with fitting candidates.

Issuing an amendment to the Corporate Governance Direction of licensed finance companies, the Monetary Board decided to extend the tenor of the directors who attain 70 while serving in boards by three more years if the Monetary Board determines their continuity serves the best interest of the finance company that they have been serving. 

While any extension of the time period will be subject to the prior approval of the Monetary Board, the maximum age of such a director who could serve in a finance company board is now capped at 75 years of age. 

“Having considered the limited ability specially in the presently prevailing, challenging environment of attracting experienced personnel with impeccable track records to the boards of directors (BODs) of the non-banking financial institution sector, the Monetary Board considers that it is prudent to provide a degree of continuity in BODs, subject to the qualification that such continuity, from an objective perspective, is in the best interest of the LFCs,” the Monetary Board stated in a directive issued under the Finance Business Act. 

The amendment to extend the age of a serving director comes hot on the heels of the Central Bank coming under pressure from governing authorities, some sections of the legislators and the general public to do more to safeguard the finance company depositors and to ensure the overall stability of the sector. 

This is one among several measures taken by the Central Bank to strengthen the non-bank financial institution sector.

Fortnight ago the Central Bank announced the apportionment of a three-member committee to look into illegal activities of finance and leasing businesses and unauthorised finance bodies after a person was clubbed to death by a group of persons connected to a leasing company not registered with the Central Bank on a matter related to a loan moratorium extended to three-wheeler leases. 

Another aspect the recent Monetary Board directive highlighted was the difficulty in finding board-worthy candidates with required qualifications and experience to serve finance companies. 

Competency of the existing director boards of finance companies is also questionable given the financial status of many finance companies as only a handful of companies operate with strong balance sheets.