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April 17, 2017

Performance will decide compensation for Bankers - New RBI Norms

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According to the new norms proposed by the Reserve Bank of India (RBI), the compensation of bank management will be based on the performance of their banks. In a revised Prompt Corrective Action (PCA) norms proposed by the Reserve Bank of India (RBI) last week, banks which do not meet financial parameters set by the RBI, would face restrictions on compensations for directors and management including the chief executive officers and executive directors. This new framework would apply to all banks operating in India including small banks and foreign banks operating through branches or subsidiaries based on breach of risk thresholds of identified indicators.

The restriction on compensation has been recommended as one of the mandatory actions by RBI towards banks that breach the third-level risk threshold when it comes to either capital, bad loans or profitability. This third-level threshold includes capital that is below the indicator by 3.625 percent, net non-performing loans above 12 percent and negative return on assets (ROA) for four consecutive years.
Current minimum prescription to maintain capital is 10.25 percent with 9 percent minimum total capital plus 1.25 percent counter cyclical buffer.

Note : SBI Chairman Arundhati Bhattacharya's annual compensation for 2015-16, according to the bank's annual report, was Rs 31.1 lakh (including incentives of Rs 7 lakh and arrears of Rs 3 lakh). This is against Rs 9.73 crore package of Aditya Puri, CEO of HDFC Bank.

Incidentally, HDFC Bank's market capitalisation is the highest, and more than all the nationalised banks put together. 

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