RBI trying to bring more accountability at Private Sector Banks
The Reserve Bank Of India (RBI) On Monday Revised The Guidelines For Salaries To The Chief Executive Officers (CEOs), Directors (WTDs) And Material Risk Takers (MRTs) Of Private And Foreign Banks. Salaries Will Now Be Determined On The Basis Of ‘Pay For Performance’ For The Officers Of Banks Working In The Private Sector. The New Rules Will Come Into Effect From April 1, 2020.
The Revised Guidlines States That If A Bank’s Financial Performance Deteriorates, The Variable Compensation Received By Its Top Official Can Be Reduced To Zero. Variable Compensation Or Variable Pay Is The Portion Of Salary That Is Based On Performance.
The Reserve Bank has said, ‘At the level of higher responsibility, the variable pay should be higher. However, the total variable pay cannot exceed 300% of the fixed pay. If variable pay is up to 200 per cent of fixed pay then at least 50 per cent of it and if it is more than 200 per cent of fixed pay then at least 67 per cent of it should be in the form of non-cash instruments. The Reserve Bank has also stated that a join or sign-in bonus should be in the form of a share linked instrument only.
These Are Revised For The First Time After 2012 When The Central Bank Had Capped Variable Pay At 70% Of The Fixed Pay In A Year, To Discourage Excessive Risk Taking For Short-Term Gains. RBI Said Compensation Should Be Adjusted For All Types Of Risks With Compensation Outcomes Symmetric With Risk Outcomes.
The central bank has revised the rules at a time when several private banks have faltered with stress in asset quality. “The objective has also been to better align the guidelines to address misconduct risk,” it said.
For Whole-Time Directors And Material Risk Takers, RBI Said Payment Of At Least 60% Of The Total Variable Pay Must Be Deferred For A Minimum Of Three Years, Subject To Clawback Arrangements.
“There should be a proper balance between the cash and share-linked components in the variable pay. Only in cases where the compensation by way of share-linked instruments is not permitted by law/regulations, the entire variable pay can be in cash,” RBI said.
HDFC Bank’s Managing Director Aditya Puri Is The Highest Paid Bank Chief Executive In India With A Monthly Basic Salary Of Rs 89 Lakh In FY19. Puri Has Led The Bank — The Most Valuable Lender In The Country — Since Its Inception 25 Years Ago.
Axis Bank’s CEO Amitabh Chaudhry, Who Took Over The Position In January, Is Second With A Basic Monthly Salary Of Rs 30 Lakh. Kotak Mahindra Bank’s Uday Kotak Is At Number Three With A Monthly Basic Salary Of Rs 27 Lakh And ICICI Bank’s Former Boss Chanda Kochhar Was At Four In The List Compiled From Annual Report Data, Having Got Rs 26 Lakh Per Month Until Her Departure.