Raghuram Rajan-led Reserve Bank of India (RBI) will soon issue guidelines for increasing remuneration of non-executive directors...
Raghuram Rajan-led Reserve Bank of India (RBI) will soon issue guidelines for increasing remuneration of non-executive directors on the board of private sector banks to help the lenders attract and retain talent.
“The need to bring in professionalism to the boards of banks cannot be overemphasised. In order to attract and retain professional directors, it is essential that they are appropriately compensated,” the RBI said in its first Bi-monthly Monetary Policy Statement.
It is proposed to “issue guidelines to private sector banks on a policy on remuneration for the non-executive directors (other than part-time Chairman) that will reflect market realities and will be within the parameters specified in the Banking Regulation Act 1949 and the Companies Act, 2013,” it said.
As per the existing norms, the remuneration of the part-time Chairmen of private sector banks are approved specifically for each bank under the current statutory provisions.
However, it said, there is no guidance on remuneration to other non-executive directors of private sector banks.
The RBI also proposed to discuss with the government the adoption of a similar remuneration policy for the non-executive directors of the public sector banks.
Public sector banks follow guidelines issued by the government in this regard.
Earlier this month, the government revamped the procedure for appointment of non-official directors to ensure efficient management of PSU banks and insurance companies.
In order to make functioning of board more effective, the RBI proposed to do away with the mandatory calendar of reviews.
It has proposed to replace it with the seven critical themes prescribed by the P J Nayak Committee “namely, business strategy, financial reports and their integrity, risk, compliance, customer protection, financial inclusion and human resources, and leave it to banks’ boards to determine other list of items to be deliberated and periodicity thereof.”
The RBI has been prescribing a comprehensive ‘Calendar of Reviews’ to be deliberated by the boards of banks, with significant additions to the calendar over the years.
“Time spent on reviews reduces the leeway for the board to discuss issues of strategic importance for banks such as product market strategy and risk management,” it said.