RBI issues compensation norms for foreign, private banks

The Reserve Bank of India has issued compensation guidelines for whole-time directors and chief executives of foreign, private, small finance, payments banks and local area banks, mandating the cash component of variable pay at 67 per cent.

The RBI said if the variable pay is up to 200 per cent of the fixed pay, at least 50 percent of it should be in non-cash. If the variable pay is above 200 per cent, 67 per cent of it should be paid via non-cash instruments.

In a notification, the RBI said that banks should continue to formulate and adopt a comprehensive compensation policy covering all their employees and conduct



annual reviews. It added that the new guidelines will be effective from April next year.

The RBI also said that it wants banks to claw-back the non-variable pay components if there is divergence in provisioning for NPAs or asset classification exceeds the prescribed threshold for public disclosure. Foreign banks operating under the branch mode will have to continue to submit a declaration to RBI annually from their head offices confirming that the compensation structure of those working in the country are in conformity with principles and standards set by the Financial Stability Board.