Half of bank CEO...

For whole-time directors and material risk takers (MRTS), the central bank said a minimum of 60 per cent of the total variable pay must invariably be under deferral arrangements. And if the cash component is part of the variable pay, at least 50 per cent of the cash bonus should also be deferred. In cases where the cash component of the variable pay is under ~25 lakh, deferral requirements would not be necessary.

The deferral period is to be for minimum of three years and applicable to both the cash and non-cash components of the variable pay. The deferred compensation should also have “malus or clawback arrangements in case of subdued or negative financial performance of the bank”.

On the specific aspect of divergence in bad loans, it said wherever the assessed divergence in bank’s provisioning for nonperforming assets (NPAS) or asset classification exceeds the prescribed threshold for public disclosure, “the bank shall not pay the unvested portion of the variable compensation for the assessment year under ‘malus’ clause. Further, in such situations, no proposal for increase in variable pay (for the assessment year) shall be entertained. The RBI’S April 1, 2019 circular (on the `Disclosure in the Notes to Accounts to the Financial Statements: Divergence in the asset classification and provisioning) had mentioned that banks should disclose divergences, if either or both of the following conditions are satisfied: the additional provisioning for NPAS assessed by RBI exceeds 10 per cent of the reported profit before provisions and contingencies for the reference period, and the additional gross NPAS exceeds 15 per cent of the published incremental gross NPAS for the reference period.

It might be recalled that the RBI has been particularly concerned over the variance in the treatment of NPAS across banks in recent times.