Mumbai, Aug 21: The RBI has given private banks a free hand to decide the pay structure of their top executives. However, the annual incentives handed out by these banks has been capped. This will not be applicable to foreign banks who predominantly run branch operations and still pay eye-popping incentives running into crores to their star performers.

The move, however, could be a positive development for smaller banks such as the Development Credit Bank, with deep-pocket promoters who were so far prevented from compensating CEOs to the extent they wished to.
Small banks seeking to appoint high-profile CEOs could not do so because of the RBI restrictions on wages. For instance, the Development Credit Bank had planned to take on Romesh Sobti, CEO ABN Amro, as its managing director. However, one of the reasons why the appointment could not take place was that the central bank refused to clear the compensation package offered. Incidentally, the RBI is yet to clear the ‘01-02 incentive package the bank had proposed for its current chief executive HV Sheshadri. However, an argument against capping bonuses is that it will kill the concept of performance-linked salaries for chief executives.
According to bankers, a likely impact of the restriction on bonuses would be that most banks would be tempted to raise the salaries of their CEOs and directors to match their earlier ex-bonus salaries. Bureau Report