The Reserve Bank of India (RBI) has started cracking down on bonuses to top executives at private sector banks.
According to sources familiar with the matter, the central bank is yet to grant its approval for bonuses to senior executives in private banks for 2016-17, even as the financial year 2017-18 has come to an end. Generally, the central bank grants its approval by mid-March, or latest by March 31, but most banks have not received RBI approval on bonus packages this year.
The bonus for 2017-18 will be decided only after the closing of annual accounts, but that will also be subject to RBI approval. The industry practice for the compensation of senior executives is to have 70 per cent of the salary as fixed pay and 30 per cent as variable pay, including bonuses.
ICICI Bank’s MD and CEO Chanda Kochhar had forgone her bonus in 2015-16, but for the next year she was supposed to receive Rs 22 million. Aditya Puri, MD and CEO of HDFC Bank, was scheduled to receive Rs 29 million in bonus for 2016-17. For the same year, Axis Bank MD and CEO Shikha Sharma was to receive a Rs 13.52 million bonus, which was 50 per cent of her basic pay.
Even as banks announce the bonuses in their annual reports, and tax is deducted on these, the actual money is received by the executives only after the RBI gives approval. Typically, the approval is sought by June, to which the RBI gives approval by February or end-March.
According to sources, the RBI, in some cases, sought clarification on such high bonuses of private sector executives at a time when there is a wide divergence between what the banks have reported as bad debts and what RBI auditors found.
According to the RBI’s definition, performance-based bonus is paid out annually and is “linked to performance achievement against balanced performance measures and aligned with the principles of meritocracy”.