Reserve Bank of India is to frame certain rules that will make the compensation norms of Bank CEOs tighter. The measures being planned will ensure that the senior executives of the banks do not try to dodge regulators and also bring down the volume of non-performing assets.
While the RBI has always had the right to clear the remunerations of bank CEOs and also ‘claw back’ a part of it in case of lapses, a formal and specific framework will provide the board with clear guidelines for approval of CEOs’ remuneration packages.
Henceforth, with the compensation package policy in place, the scope for interpretation will be reduced with regard to remuneration. The bank CEOs will also end up paying a significant sum in the form of claw back of stock options and bonuses in case they fail to comply with the regulatory norms. The provision of ‘claw back’ allows the banks to take back money which has already been paid to the CEOs.
From now on, the remuneration of banks CEOs will be linked to the balance sheet size of a bank, loan delinquency, profits, governance record and other such parameters. The boards of directors of banks will now have to follow a template when it comes to lending approval to matters such as salary increments, performance bonus and stock options to CEOs.
The framework will ensure that CEOs of banks are prevented from indulging in any kind of fraud to show more profitability, or fail to comply with the regulatory norms put forward by RBI, Sebi or IRDAI. The CEOs will not be allowed to quit their posts with attractive bonuses and stock options. The ‘claw back’ provision will allow the banks to take back the benefits, if they are found to have performed below expectations.