P J Nayak, chairman and managing director of UTI Bank, has decided to quit after his term ends on July 31, 2007 as the Reserve Bank of India has declined a two-year extension to Nayak as chairman and managing director.

The central bank has also sought to split the post of chairman and managing director at the bank in line with the Ganguly committee report on corporate governance and in accordance with international best practices.

On February 20, 2007, the board had reappointed Nayak as the CMD for two years from August 2007 to July 2009. This was subject to the approval of The Specified Undertaking of the Unit Trust of India (the majority owner with 27.47 per cent stake), the RBI and shareholders. LIC is the other large shareholder with 10.39 per cent stake.

The decision comes as a major blow to the bank as it is grappling with the issue of succession. S B Mathur, the administrator of SUUTI had earlier said that, "SUUTI had reappointed Nayak as he's been doing a good job. We thought we must give him an extension as the bank needed continuity before we can find a suitable successor."

Mathur said, "This is not the right time to talk as I have not had a word with the bank." The board will now meet on the April 17 to decide its future course of action.

Banking sources said the nomination committee was of the view that it would be in the interest of the bank that Nayak continues before they find a successor.

Appointment of an outsider, the committee thought, could create unrest in the bank, as there are many senior executives within the bank but are closer to retirement.

The committee might now decide to appoint one of the three executive directors as the chairman and bring in an outsider as managing director.

The bank's executive director-corporate strategy, Asok Kumar is said to be the frontrunner to become the chairman. The other two executive directors at the bank are M M Agarwal and V K Ramani.

Nayak could not be contacted as he is Dubai in connection with the opening of the bank's branch at the Dubai International Financial Centre.

The bank in a statement to the stock exchanges said, "PJ Nayak has informed the RBI and the remuneration and nomination committee of the board of the bank that after having spent over seven-and-a-half years as CMD, it would not be possible for him to function in a different and lesser capacity in the bank and he will, therefore, cease to be associated with the bank after July 31, 2007."