Mumbai: The Reserve Bank on Friday said CEOs and
staff of private and foreign banks cannot draw "excessive"
salary, but it did not impose any cap on their remuneration.
Issuing guidelines on compensation of CEOs and staff of
private and foreign banks, RBI said all private and foreign
lender will have to obtain prior approval from it for
renumeration of CEOs and whole time directors as per the
Banking Regulation Act, 1949 which prohibits excessive
However, the guideline did not specify what would
constitute excessive renumeration.
Banks are required to ensure that the fixed portion of
compensation is reasonable, taking into account all relevant
factors, including the industry practice, it said.
While designing the compensation arrangements it should
be ensured that there is a proper balance between fixed pay
and variable pay, it said. Variable pay, however, should not
exceed 70 per cent of the fixed pay in a year.
The guidelines would be implemented from 2012-13.
"As hitherto, private sector and foreign banks operating
in India would be required to obtain regulatory approval for
grant of remuneration to whole time directors or chief
executive officers in terms of Section 35B of the Banking
Regulation Act, 1949," RBI said in a notification.
"The approval process will involve an assessment whether
the compensation policies and practices are in accordance with
the Financial Stability Board (FSB) Principles," it said.
The principles are intended to reduce incentives towards
excessive risk taking that may arise from the structure of
compensation schemes. The principles call for effective
governance of compensation, alignment of compensation with
prudent risk taking, effective supervisory oversight and
stakeholder engagement, it said.
The principles have been endorsed by the G-20 countries
and the Basel Committee on Banking Supervision and are under
implementation across jurisdictions, it added.