MUMBAI: In a bid to enable private banks draw more talent on to their boards, Reserve Bank of India has permitted lenders to compensate non-executive directors. However, the total level of compensation has been capped at Rs 10 lakh per annum per director.
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In a circular to all banks RBI said that to bring in professionalism to the boards of banks and to enable them attract and retain professional directors, it is essential that such directors are appropriately compensated. This is a departure from its present stance whereby banks in private sector pay only sitting fees to non-executive directors. The part-time chairman however, is being paid a fixed remuneration with the approval of RBI.
In terms of RBI's directive the board of directors would formulate and adopt a comprehensive compensation policy for non-executive directors. "In addition to the directors' compensation, the bank may pay sitting fees to the non-executive directors and reimburse their expenses for participation in the Board and other meetings, subject to compliance with the provisions of the Companies Act, 2013," the directive said. The compensation is subject to an approval from the central bank and would have to be disclosed by the banks in their financial statements.
Although the Companies Act allows up to 1% of a firm's profit to be paid out as commissions to board members, RBI hitherto did not permit part-time directors of banks (except non-executive chairmen) to be paid any remuneration other than sitting fees. The proposal to introduce compensation for non-executive directors was first broached in the report of the committee to review governance of boards of banks in India headed by PJ Nayak.
The Nayak committee had said that the inequality in board compensation between public sector and private sector banks would get further aggravated if a share of profits is paid to private sector bank board members in accordance with the Companies Act. Also there exists inequality in board compensation between private sector bank boards and boards of non-banks, because RBI prevents the Companies Act provisions from being made applicable to private sector banks. The panel had recommended allowing compensation to directors of private banks in a phased manner based on their profitability.
The central bank on Monday also relaxed norms relating to bank investing in infrastructure bonds floated by their peers. The relaxation is subject to the investment being capped at 2% of the investing bank's tier I capital. Also not more than 20% of the primary issue size of such bond issuance can be allotted to banks.
Source - Times Of India
www.sevagiri.com
In a circular to all banks RBI said that to bring in professionalism to the boards of banks and to enable them attract and retain professional directors, it is essential that such directors are appropriately compensated. This is a departure from its present stance whereby banks in private sector pay only sitting fees to non-executive directors. The part-time chairman however, is being paid a fixed remuneration with the approval of RBI.
In terms of RBI's directive the board of directors would formulate and adopt a comprehensive compensation policy for non-executive directors. "In addition to the directors' compensation, the bank may pay sitting fees to the non-executive directors and reimburse their expenses for participation in the Board and other meetings, subject to compliance with the provisions of the Companies Act, 2013," the directive said. The compensation is subject to an approval from the central bank and would have to be disclosed by the banks in their financial statements.
Although the Companies Act allows up to 1% of a firm's profit to be paid out as commissions to board members, RBI hitherto did not permit part-time directors of banks (except non-executive chairmen) to be paid any remuneration other than sitting fees. The proposal to introduce compensation for non-executive directors was first broached in the report of the committee to review governance of boards of banks in India headed by PJ Nayak.
The Nayak committee had said that the inequality in board compensation between public sector and private sector banks would get further aggravated if a share of profits is paid to private sector bank board members in accordance with the Companies Act. Also there exists inequality in board compensation between private sector bank boards and boards of non-banks, because RBI prevents the Companies Act provisions from being made applicable to private sector banks. The panel had recommended allowing compensation to directors of private banks in a phased manner based on their profitability.
The central bank on Monday also relaxed norms relating to bank investing in infrastructure bonds floated by their peers. The relaxation is subject to the investment being capped at 2% of the investing bank's tier I capital. Also not more than 20% of the primary issue size of such bond issuance can be allotted to banks.
Source - Times Of India
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