Even as FY19 comes to a close, the Reserve Bank of India (RBI) is yet to approve bonuses and stock options for CEOs of private banks for FY18. This delay is because the variable pay component of the new compensation policy is still being finalised, reports Business Standard.
A source told the newspaper that this is the longest delay yet. “Usually the clearance comes in by October-November, but this year seems to be special,” the person said. There was a delay in FY17 as well, but the approvals had come in before the end of the calendar year. The RBI wants to have standards in place before this process begins again for the current fiscal.
Apparently, most of the cases have been sorted and almost closed now. The bonuses will be released soon, which will provide insight into the compensation regime for CEOs, the newspaper report stated.
The new policy being drafted will put greater emphasis on information drawn from the annual financial inspection reports (AFIs) and risk-based supervision (RBS) — the offsite surveillance system. It will also take into account compliance by private banks and their subsidiaries with regulators like Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority of India (IRDAI).
The central bank is tangled in some governance issues in case of a few private banks. “The RBI did ask about exposure to non-banking finance companies (NBFCs) and the real estate sector after what happened at the Infrastructure Leasing & Financial Services (IL&FS),” another source told the newspaper.
“Appropriate regulatory actions were taken against some private sector banks on account of certain lapses in their functioning and governance. With a view to align the compensation policy with evolving international best practices and for an objective assessment of remuneration sought by the banks for their whole-time directors, a review of the extant guidelines on compensation is on the cards,” the central bank noted in its Trend and Progress of Banking in India (2017-18) report.
Even the extent of variable pay is being reviewed and terms for clawback are being written.