RBI issues direction on compensation of private banks' top officials

The RBI said on Monday the fair value of the share-linked incentives paid to chief executive officers, whole-time directors and other key functionaries by the private banks should be recognised as an expense during the relevant accounting period.

The RBI has also asked all banks, including local area banks, small finance banks and foreign banks to comply with its directions for all share-linked instruments granted after the accounting period ending March 31, 2021.

The central bank had issued guidelines on the compensation of whole-time directors/ chief executive officers/ material risk takers and control function staff in November 2019.

Issuing a clarification in this regard, the RBI said, the fair value (of share-linked incentives) ...Should be recognised as expense beginning with the accounting period for which approval has been granted".

In terms of the extant guidelines, share-linked instruments are required to be fairly valued on the date of grant using the Black-Scholes model.

The RBI issued the clarification saying "it has been observed" that banks do not recognise grants of the share-linked compensation as an expense in their books of account concurrently.