RBI norms on pvt sector bank CEOs' salaries soon

The Reserve Bank of India (RBI) is likely to announce draft guidelines on the compensation packages of the private sector bank chiefs by next month, a move aimed at aligning the salary structures with business performance.

"The indications are that the draft paper will be out by March. This would be aimed at putting a framework in the way banks compensate their CEOs and other top executives," a source in the know told PTI.

In mid-term policy review, Reserve Bank Governor D Subbarao had said that the apex bank was working on the principles outlined in the Financial Stability Board for sound compensation and will come out with norms to ensure healthy practices in compensation policies of private and foreign banks.

The governor had highlighted compensation practices, especially those of bigger financial institutions, as one of the factors that contributed to the recent global financial crisis.

In the G-20 meet last year, the world leaders expressed concerns over the high compensation packages of top bank executives, which, they argued was a not positive sign in a healthy financial system.

With a view to align the compensation with long-term value creation, the G-20 leaders asked the central banks to formulate compensation policies. Though, each country will have to adopt come out with its own rules.

The agreements reached at the G-20 summit discourage bonus guarantees extending more than a year. Besides, the bonuses should be linked to their individual contribution and performance in the organisation, the world leaders had said.

"What the RBI is trying to do is to rationalise the remunerations of CEOs and other key employees in private and foreign banks, as they feel it is important for the health of the individual firm and the system as a whole," the source said.

Currently, the salaries of top executives in private and foreign banks are approved by the central bank after the respective bank's board gives a go ahead to the proposal.

Last year, the Reserve Bank had reportedly expressed concerns on the compensation packages of at least three private sector banks as it felt that the salary structure was not in line with market standards.