RBI Notice Guidelines On Private Banks’ Top Officials Compensation

The Reserve Bank of India (RBI) on Monday said that, the fair price of the share-linked incentives paid to Chief Executive Officers (CEO), entire time directors, and other key functionaries by the private banks ought to be perceived as an expense during the applicable accounting time period.

Issuing a clarification on the development, the RBI said, The reasonable price of share-linked incentives ought to be perceived or recognized as an expense starting with the accounting time frame for which approval has been allowed. 

The Central Bank has directed all banks like local area banks, small finance banks and foreign banks to adhere to these guidelines for all share-linked instruments granted. 

In November 2019, the RBI had also circulated direction or regulatory guidelines on the compensation of whole-time directors, and CEOs, material risk takers and control function staff.

Meanwhile, as far as the extant rules are concerned, share-linked instruments are needed to be genuinely valued on the date of grant utilizing the Black-Scholes model. 

The Reserve Bank of India also clarified that, “it has been observed” that all the banks don't recognize grants of the share-linked compensation as an expense in their records of account simultaneously.