RBI caps compensation for non-executive director of private banks at Rs 10 lakh per annum

MUMBAI: The Reserve Bank of India (RBI) has capped the remuneration on non-executive director of private banks to Rs 10 lakhs per annum while the compensation of non-executive part-time chairman will require a prior approval from the banking regulator. The RBI has however said that over and above this compensation, banks can offer a sitting fee to non-executive directors and reimburse their expenses for participation in the board.

In a details guideline on compensation issued on Monday, RBI said that banks will have to disclose the remuneration paid to the directors on an annual basis in their annual financial statements.

The regulator has also given banks an option to share a part of their profit with non-executive director provided the bank makes profits. Banks can offer 'payment of compensation in form of commission to the non- executive directors’ said the statement issued by RBI. This compensation, however will have to be within the overall cap pf Rs 10 lakh per annum. This would mean that private banks like ICICI Bank, HDFC Bank and Axis Bank will have to take a fresh look at their compensation policy for independent directors of their board.

As of now, the non-executive director of public sector banks and private banks do not receive any annual compensation while the part-time chairman is paid fixed remuneration.

In case of public sector banks, the non-executive directors receives a nominal remuneration which is Rs 10,000 for every board meeting and Rs 5000 for participating board committees such as audit committee or HR committee. This is substantial lower than that being paid by private banks.

The banking regulator has said that the compensation policies of banks would be subject to supervisory oversight in line with the requirement of Basel II accord. "Deficiencies would have the effect of increasing the risk profile of banks with attendant consequences, including a requirement of additional capital if the deficiencies are very significant," it said.