Home / Industry / Banking /  Bad bank links salary of CEO to market rates

MUMBAI : The chief executive of National Asset Reconstruction Co. Ltd (NARCL) will earn a total remuneration of 1.7 crore per annum, significantly higher than the salaries of the chief executives of some of the large state-owned banks, whose stressed loans the bad bank will be managing.

By linking the salary to market rates for someone who will lead one of India’s biggest experiments in bad loan clean-up, NARCL is making efforts to attract experienced talent.

It is also seen as an attempt to be more market-driven despite being primarily backed by public sector lenders.

In a meeting on 30 May, NARCL’s board of directors approved the salary package for Natarajan Sundar, a former State Bank of India (SBI) executive, appointed to lead the bad bank, according to documents reviewed by Mint.

The total compensation will also include a 44 lakh variable pay, allowing Sundar to be eligible to participate in the annual discretionary bonus plan of NARCL, which is based on the achievement of annual targets set by the board and approved by the regulator, it added.

However, Sundar’s salary will be lower than that of his counterpart at the largest private asset reconstruction company. According to disclosures, Edelweiss ARC chief executive R.K. Bansal’s annual salary is 3.25 crore.

As of 31 December, the ARC managed security receipts of 41,814 crore, showed a ratings report by Crisil on 4 March.

The compensation gap between public and private sector lenders has always been an issue, with heads of state-owned banks earning less than 10% of what most of their private sector peers earn. For instance, while SBI chairman Dinesh Khara earned a salary of 34.4 lakh in FY22, HDFC Bank’s chief executive Sashidhar Jagdishan was paid 6.51 crore. Experts said since public sector bank executives end up heading institutions like NARCL, compensation is never a problem, given their low bases.

“Target candidates for these positions are usually from other PSUs, so compensation is not an issue," said K Sudarshan, managing director of executive search firm EMA Partners India. Sudarshan added that while targeting professionals from the private sector, some state-owned banks have got senior candidates on a contract or as an adviser outside their typical pay scale. Over time it may become a level playing field, but as of now, there is a huge disparity, he said.

After finance minister Nirmala Sitharaman announced plans to set up a bad bank in February 2021, bankers had said about 2 trillion of bad loans would be gradually transferred to the entity. Once the assets are all transferred in tranches, NARCL is slated to become the largest bad asset turnaround company. However, banks have received bids for just two accounts so far: Rainbow Papers Ltd and Consolidated Construction Consortium Ltd, hinting a long road ahead.

Initially, NARCL suffered delays after the Reserve Bank of India said it was unhappy with the proposed structure. Lenders then presented a revised proposal to the regulator. Under the new structure approved by the regulator, NARCL will acquire and aggregate bad loan accounts from banks, while India Debt Resolution Co. Ltd will handle the resolution process under an exclusive arrangement.

Queries emailed to the NARCL spokesperson remained unanswered till press time.

 

ABOUT THE AUTHOR

Shayan Ghosh

Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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