RBI is readying a set of guidelines on the banking sector remuneration to ensure that private and foreign lenders in India do not go overboard in their attempt to rope in high-profile bankers and denting their bottomlines.
The banking regulator, which has in the past expressed concerns about fancy compensation packages of private and foreign bank chiefs, is working on the guidelines of Financial Stability Board( FSB) and Basel Committee on Banking Supervision (BCBS) to draft its principles for banking sector remuneration.
Compensation of bank chiefs has irked RBI for some time. In July this year, it warned that employees were too often rewarded for increasing short-term profits without adequate recognition of risks their activities posed to their organisations. "These perverse incentives amplified excessive risk taking that severely threatened the global financial system,' it said in its July policy review.
The central bank's views have received some broader support.
"Some rationality has to be brought in when it comes to compensation principles. The compensation of the chief executive officer of a bank and senior management should be commensurate to the size, scale and complexity of their operations," said RH Patil, chairman, Clearing Corp of India and an independent director on the board of Axis Bank.
Earlier, RBI had turned down Kerala-based Federal Bank's proposal to offer a salary of 1 crore and stock options to recruit Bala Swaminathan, a top corporate banker with Standard Chartered Bank. Swaminathan subsequently joined Merrill Lynch.
In the past, the central bank had also raised concern on the compensation package offered to Axis Bank chief Shikha Sharma and bonuses Bank of America Merrill Lynch offered its India country head Kaku Nakhate.
"At times the compensation and bonuses given to treasury heads of foreign and private sector banks are higher than the salary of the banks' CEO," said a foreign bank chief.
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