Reserve Bank of India (RBI) on Monday issued revised guidelines for compensation given to chief executives and whole-time directors at private banks to mitigate risks arising out of huge incentives that threaten the financial structure of an organisation and to keep governance in check.
Private sector banks, foreign banks operating under the wholly-owned subsidiary mode, and foreign banks operating in India under the branch mode are required to get regulatory approval for grant of remuneration, the Reserve Bank said in a circular.
The approval process will involve an assessment of whether the bank’s compensation policies and practices are in accordance with the guidelines set out by the Basel Committee on Banking Supervision (BCBS) methodologies, the regulator said.
“The principles are intended to reduce incentives towards excessive risk taking that may arise from the structure of compensation schemes. The principles call for effective governance of compensation, alignment of compensation with prudent risk taking, effective supervisory oversight and stakeholder engagement," it said.