A long wait for bank CEOs as RBI delays FY18 bonuses, stock options

The Reserve Bank of India (RBI) is yet to clear the bonuses and stock options of the chief executive officers (CEOs) of 

private sector banks for 2017-18, even as the curtains are set to come down on fiscal 2018-19. 

The logjam is due to the variable pay component of a new compensation policy in the works, even as the financials of these banks are being gone over with a fine tooth-comb.

The delay in giving the nod to CEO packages is by far the longest yet. “Usually the clearance comes in by October-November, but this year seems to be special,” said a source in the know. 

The central bank had taken time to clear the bonuses and stock options of private bank CEOs for 2016-17 too, but had given approval by the calendar end.

Mint Road wants to set the standards before the same process begins for the current fiscal year and wants to fine-tune the concept of a “good corporate citizen”, which is high on the list of its priorities.

It was pointed out “most cases have been sorted, and almost closed now”. It’s only a matter of time before they are cleared, which will give the first glimpse of a new CEO compensation regime. The RBI goes through the findings of the annual financial inspection reports (AFIs) and risk-based supervision (RBS) — the offsite surveillance system — of private banks before it gives the green signal.

It is believed that in the case of a few private banks, “the RBI was engaged in considerable talks over a few accounts and governance issues. The RBI did ask us about exposure to non-banking finance companies and the real estate sector after what happened at the Infrastructure Leasing & Financial Services,” said another source.

In its Report on Trend and Progress of Banking in India (2017-18), the RBI had made an explicit reference on private bank CEO pay.

“Appropriate regulatory actions were taken against some private sector banks on account of certain lapses in their functioning and governance. 

Furthermore, 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,” it had noted.

The current delay must also be seen in the context of a new policy on CEO remuneration being drafted, which will place greater emphasis on the findings of the AFI and RBS. It is expected to place stress on compliance by private banks and their subsidiaries with the Securities and Exchange Board of India, and the Insurance Regulatory Authority of India.

The extent of variable pay and the possibility of including stock options in the same are up for review, even as well-defined terms of clawback are set to be written in.