The Reserve Bank of India has come out with a discussion paper on guidelines for compensation in private banks. The guidelines, among other things, suggest a minimum variable pay component and clawback arrangements. There is also a suggestion that the performance of chiefs of public and private sector banks should be monitored by the board of directors of the concerned banks either through a sub-committee or an external peer group. Giving details of the discussion paper, RBI governor Shaktikanta Das said it is mooted that an effective performance evaluation system should be put in place for banks to improve their financial and operating parameters. At a function in NIBM, the governor said in order to improve the functioning of the public sector bank boards and to foster corporate governance, it is important to enhance their quality and stability by further streamlining appointment process, succession planning and compensation. He felt the governance issues in private sector banks originate from altogether different set of concerns. The issues mainly relate to incentive structure of their managements, quality of audits and compliance and also efficient functioning of audit and risk management committees.
