CEOs of Poor Performing Private Banks will not be able to take Hefty Salary, RBI says

The Reserve Bank of India (RBI) has made such a change in the rules regarding the salaries of top officials of private banks, that now the officers of poorly performing banks will not be able to take a hefty salary.
CEOs of Poor Performing Private Banks will not be able to take Hefty Salary, RBI says

The Reserve Bank of India (RBI) takes strict action in the case of salary given to CEOs of private banks. The Reserve Bank has made such a change in the rules regarding the salaries of the top officials of private banks, that now the officers of the poorly performing banks will not be able to take a hefty salary.

The Reserve Bank on Monday revised the guidelines for salaries to the CEOs of private and foreign banks, full-time directors (WTDs) and Material Risk Takers (MRTs). The new rules will come into effect from April 1, 2020.

It states that if the financial performance of a bank is poor, the variable compensation to its top officer can be reduced to zero. Variable compensation or variable pay is the portion of salary that is based on performance.

Significantly, despite the condition of the banks, their top officers continue to take hefty salaries. According to media reports, HDFC Bank MD Aditya Puri was the highest paid bank executive in the country with a monthly salary of Rs 89 lakh in FY 2019. Amitabh Chaudhary, who took charge as CEO of Axis Bank in January, was second in the list of bank officials with a monthly salary of Rs 30 lakh. Uday Kotak of Kotak Mahindra Bank was third with a monthly salary of Rs 27 lakh.

Allowances and other items are not included in this calculation of salary, as they are given in different ways in different banks. The statistics of the salary of the Chief Executive of the banks have been found from the annual report of the banks.

The regulatory guidance that preceded it was a general directive to fix the salary and allowances of senior officers on the basis of functions like 'business,' 'control' and 'risk'. But now the rules made by the RBI will be directly related to the vibration of the CEO.

However, the RBI guidelines also state that all fixed items of salary such as prequisite, performance bonus, guaranteed bonus, severance package, share linked instruments such as employee stock options (ESOPs), pension plans, gratuity etc. Will be considered as part of fixed pay. The Reserve Bank has said that there should be a proper balance between fixed pay and variable pay.

According to the Reserve Bank, CEOs, WTDs and MRTs can be offered as variable pay share linked instruments or as a mix of cash and share linked instruments. According to the rule, at least 50 per cent of the salary should be in the form of variable pay and it should be based on the performance of the person concerned, his business and the comprehensive performance of the firm.

 Reserve Bank say

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 percent 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 over 200 per cent of fixed pay then at least 67 per cent of it should be in the form of non-cash instruments. It is also said that the joining or sign-in bonus should be in the form of share linked instrument only.

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