Update: Kotak Mahindra released a statement saying that reports suggesting the central bank was pushing it to find a successor for Uday Kotak were completely false. The lender said the RBI had not made any such communication either formally or informally.

The Reserve Bank of India (RBI) is reportedly urging Kotak Mahindra Bank to appoint an external CEO to succeed its founder, Uday Kotak.

What Happened? The RBI has conveyed this preference to the bank’s board members and is also reviewing the bank’s stakes in two wholly-owned insurance units for potential risks to the firm’s stability, the Economic Times Reported.

India has recently tightened rules limiting bank CEOs’ tenure to a maximum of 15 years and is scrutinising banks’ stakes in insurers to strengthen the nation’s financial system. The RBI previously stated that outgoing bank heads should have a three-year cooling period and avoid association with the bank or its group entities to ensure a clean break.

Why It Matters: Uday Kotak’s tenure as CEO of Kotak Mahindra Bank ends this year, and while he will remain on the board with shareholder approval, appointing an internal candidate might raise concerns about potential influence on decision-making.

In response, Kotak Mahindra’s spokesperson told the business news daily that the current holdings in its insurance companies comply with existing regulations. However, they refrained from commenting on the CEO selection.

Earlier, the bank reportedly engaged consulting firm Egon Zehnder to conduct a global CEO search. Shanti Ekambaram and KVS Manian, the bank’s executives, were internal candidates for the job, but the final decision lies with the RBI.

Uday Kotak, with a net worth of around $14.5 billion, has led the bank since its transformation into a lender in 2003.