RBI proposes new compensation norms for top officials of private, foreign banks

Mumbai: The RBI Monday proposed that at least 50 per cent of compensation of senior officials of private and foreign banks, including whole time directors and chief executive officers, "should be variable".

In its discussion paper on proposed guidelines for compensation of whole time directors/chief executive officers/material risk takers and control function staff issued by the central bank also said ESOPs should be included as a component of variable pay.

RBI proposed changes from the extant Guidelines

•     Substantial portion of compensation i.e. at least 50%, should be variable (Earlier no threshold was prescribed)
•     ESOPs to be included as a component of Variable Pay. (Earlier excluded)
•     Variable Pay is to be capped at 200 % of Fixed Pay (Earlier Variable Pay was capped at 70% of Fixed Pay but did not include ESOPs).
•     Minimum 50% of Variable Pay is to be via non-cash component. (Earlier no specific proportion was prescribed).
•     Mandating a compulsory deferral mechanism for Variable Pay, regardless of quantum of variable pay (Earlier it was mandated only beyond a specified threshold).
•     Mandating imposition of malus in case of divergence in NPA/provisioning beyond RBI prescribed threshold for public disclosure. (New addition)
•     Quantitative and Qualitative criteria is being prescribed for identification of Material Risk Takers.

The guidelines have been proposed for private sector banks, including Local Area Banks, Small Finance Banks and Payments Banks. For the foreign banks operating in India by way of Wholly Owned Subsidiary structure, the guidelines as applicable for private sector banks in India will be applicable, the paper said.

The Central Bank has also sought comments on the proposed guidelines from banks and other interested parties by March 31, 2019.