Mumbai: The Reserve Bank on Wednesday said it has put off implementation of its guidelines on compensation including salary for CEOs and other top executives in private and foreign banks till 2012-13.
The guidelines had been due to be implemented in 2011/12 but the Reserve Bank of India said the move was deferred to give banks sufficient time to frame their policies.
“The RBI has deferred implementation of the guidelines on compensation for whole time directors / CEOs/ risk takers and control function staff of private sector banks and foreign banks operating in India to 2012-13. This was done to give banks sufficient time to formulate their policies,” RBI said in a statement.
RBI had decided to find ways to regulate salary of CEOs and other top officials in private and foreign banks, since hefty compensation was one of the factors in the global financial meltdown.The hefty compensation for top bosses for global financial institutions, designed on the basis of their risk taking ability was also considered responsible for the 2008 global crisis.
It has asked banks to refer to the Basel Committee on Banking Supervision’s (BCBS) document on Methodologies for Risk and Performance Alignment of Remuneration, which was issued in October, and start preparatory work for formulating compensation policies.
RBI had proposed to limit annual salary increases of CEOs or wholetime directors of private banks to 10-15%, besides a provision for slashing their remuneration in case of poor financial showing, in its draft guideline.
“A large number of comments/suggestions have been received on draft guidelines,” RBI said and added that these are being examined.
And it would issue the final guidelines on compensation after the publication of the final paper by BCBS
The central bank had said that guaranteed bonuses were not consistent with sound risk managements or productivity- linked principles and proposed that they should not be a part of the compensation plan.
Bonus should only be given for new staff and be limited only to the first year, the draft had said.
As a matter of fact, the country’s largest private sector bank ICICI’s chief Chanda Kochhar got a remuneration of Rs1.73 crore in 2009-10, as against market leader and state-run lender SBI chief O P Bhatt’s Rs26.51 lakh.
The number of top executives at private sector banks getting remuneration in excess of Rs one crore a year is more than that of their counterparts in any other sector, according to data available for fiscal year 2009-10.
Reuters also contributed to this story