It’s goodbye for fancy salaries in foreign banks

RBI urges those operating in India to set up remuneration panel to fix pay

In what could change the career landscape in private and foreign banks as a lucarative option, given that they lured the best banking brains with fancy paychecks, the Reserve Bank of India (RBI) has now drawn the laxman rekha on “excessive” salary their staff can get and the management can dole out. Among bankers drawing an annual salary in excess of Rs 1 crore include ICICI Bank CEO Chanda Kochhar, Axis Bank CEO Shikha Sharma, ICICI Bank top executives directors K Ramkumar, N S Kannan, Rajiv Sabharwal. The government fixes the remuneration for key executives of public sector banks RBI’s top officials, including the governor.While neither succinctly specifying what constitued “excessive remuneration” nor putting a specific ceiling on it, the RBI, has, however, made it mandatory for private and foreign banks to obtain prior permission from RBI while fixing the salaries of their staff and CEOs and wholetime directors. Stipulating the series of dos and don’ts in this regard through fresh guidelines for them to follow, the RBI has said they should strictly go as per the Banking Regulation Act, 1949, which prohibits excessive remuneration. Incidentally, according to information available from RBI under Right to Information Act, Governor D Subbarao got a gross salary of Rs 1,28,500 in the month of June 2010. This corresponds to an annual package of little over Rs 15 lakh for RBI Governor, who is a signatory to all the currency notes in the country. In RBI’s view, these banks are required to fix reasonable compensation, taking into account all relevant factors, including the industry practice and a proper balance ensured between fixed pay and variable pay. Variable pay, however, should not exceed 70 per cent of the fixed pay in a year, it noted.The guidelines would be implemented from 2012-13. The approval process, RBI said, will involve an assessment whether the compensation policies and practices are in accordance with the Financial Stability Board (FSB) Principles. The principles are intended to reduce incentives towards excessive risk taking that may arise from the structure of compensation schemes. The principles call for effective governance of compensation, alignment of compensation with prudent risk taking, effective supervisory oversight and stakeholder engagement, it said. The principles have been endorsed by the G-20 countries and the Basel Committee on Banking Supervision and are under implementation across jurisdictions, it added. Banks, the RBI guidelines stipulated, should formulate and adopt comprehensive compensation policy covering all their employees and conduct annual review. The guidelines directed private sector banks to constitute a remuneration committee (RC) of the Board to oversee the framing, review and implementation of compensation policy of the bank on behalf of the board. The RC should have a minimum of three members and should include at least one member from Risk Management Committee of the Board. The majority of members of the RC should be independent non-executive directors, it said. The RC should also ensure that the cost/income ratio of the bank supports the remuneration package consistent with maintenance of sound capital adequacy ratio, it said. Banks are required to make disclosure on remuneration on an annual basis at the minimum, in their annual financial statements, it added. As regards salary of foreign bank executives, the RBI guideline said it is expected that Head Offices of most of these banks would align their compensation policies in line with the FSB principles. Foreign banks operating in India will, therefore, be required to submit a declaration to Reserve Bank annually from their Head Offices to the effect that their compensation structure in India, including that of CEOs’, is in conformity with the FSB principles and standards, it said. RBI would take this into account while according approval of CEOs’ compensation, it said, adding, the compensation proposals for CEOs and other staff of foreign banks operating in India which have not adopted the FSB principles in their home country are required to implement the compensation guidelines as prescribed for private sector banks in India.

DH
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‘Fake notes have 11 security features’

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ATMs may accept cash directly

If the recommendations of a government-appointed committee on automated teller machines (ATMs) are accepted, besides dispensing notes, the machines may soon start accepting cash directly. The ATMs to be deployed by the banks will come equipped with a cash acceptor, which will accept currency notes of denominations between Rs 50 and Rs 1,000. At present, ATMs accept cash in an envelope, which is manually credited into the depositor's account. Therefore, it takes a day or more for the money to appear in the bank account. The new cash deposit feature will speed up the process. Moreover, the machines will be programmed to automatically retract the notes left behind by customers. The committee, which was led by Ashok Jhunjhunwala, professor, Indian Institute of Technology Madras, has also suggested that these ATMs have solar powered back-up and a surveillance mechanism in place for better safety. The committee has suggested that ATMs must have an internal camera, which should store digital images of the users and be able to stamp the transaction information on these images. When we contacted Jhunjhunwala, he confirmed that the initiative came from the finance ministry and the recommendations are with the financial services department of the ministry.

Business Today

Mindset change necessary in Kerala, says planning panel vice-chairman

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Give the middle class a break

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NRIs send more money back home in 2011

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Jaypee Wish Town flat owners to approach RBI, SEBI

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‘Banks must leverage tech for official language implementation'

Mangalore : There is a need for banks to leverage the use of technology in the implementation of official languages, according to Mr Ajai Kumar, Chairman and Managing Director of Corporation Bank. He was speaking at the 131st meeting of the Official Language Implementation Committee (OLIC) of the Department of Financial Services (DFS) of the Union Finance Ministry, and the 128th meeting of the Official Language Implementation of Committee of Department of Banking Operations and Development (DBOD) of the Reserve Bank of India, which were hosted by Corporation Bank here on Friday. He also emphasised the need for exchange of terminologies between Hindi and other Indian languages as envisaged in the Article 351 of the Constitution of India. Mr V.P. Bhardwaj, Joint Secretary, DFS, said that use of simple Hindi should be encouraged for official work. He also urged the delegates to discuss the issue of making available the facility to work in Hindi in core banking solution.

Mr Deepak Singhal, Chief General Manager of RBI, said that at a time when the banks are focusing on financial inclusion, the emphasis should be on reaching out to the masses in their own language. Executives in charge of Official Language Division of all public sector banks attended the meetings.

HBL

RBI to sensitise residents on fake currency

CHENNAI: Following a report published in Express about a panchayat which sought police help to sensitise the residents on fake currency, officials of the RBI have announced that they would train residents of Kovilambakkam village in Pallikaranai to create awareness on counterfeit notes. On Sunday, three labourers, Habibul Rahaman (26), Abdul Mutalik (25) and Prashant Mondal (23) from Malda, West Bengal, who were living in labour camps in Pallikaranai, were picked up by sleuths of the National Investigation Agency for circulating fake currencies. The Express report, ‘Fake Notes in Circulation has Pallikaranai Residents Worried,’ highlighted how residents of Sunnambu Kolathur were shocked over the arrest and also feared circulation of fake notes in their area as the fraudsters had circulated currency notes of higher denomination that are hard to detect.RBI officials said they would conduct the programme free of cost once the panchayat decides on a venue and date. “We will show samples of counterfeit and genuine currency to the residents. Anyone can come and be a part of our programme and we will also give them pamphlets. Why should the residents approach the local police for this? It is our job to do it and we do not want the people to be despondent,” an official said. Kovilambakkam panchayat officials, who were approached by the RBI to conduct the programme, informed that they would conduct the workshop next week after the Pongal holidays. Panchayat president A Ranganathan said, “We have decided on two venues. We will show it to the RBI officials and once the holidays are over, we will have the meeting.”

Express News

Selection on for top jobs in government banks

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BS

Maharashtra seeks more time for co-op banks to get RBI licence

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HBL

Guidelines for private, foreign banks’ CEOs’ pay

The Reserve Bank of India on Friday said CEOs and staff of private and foreign banks cannot draw "excessive" salary, but it did not impose any cap on their remuneration. Issuing guidelines on compensation of CEOs and staff of private and foreign banks, RBI said all private and foreign lender will have to  obtain prior approval from it for renumeration of CEOs and whole time directors as per the Banking Regulation Act, 1949 which prohibits excessive renumeration. However, the guideline did not specify what would constitute excessive renumeration. Banks are required to ensure that the fixed portion of compensation is reasonable, taking into account all relevant factors, including the industry practice, it said. While designing the compensation arrangements it should be ensured that there is a proper balance between fixed pay and variable pay, it said. Variable pay, however, should not exceed 70 per cent of the fixed pay in a year. The guidelines would be implemented from 2012-13. "As hitherto, private sector and foreign banks operating in India would be required to obtain regulatory approval for grant of remuneration to whole time directors or chief executive officers in terms of Section 35B of the Banking Regulation Act, 1949," RBI said in a notification. "The approval process will involve an assessment whether the compensation policies and practices are in accordance with the Financial Stability Board (FSB) Principles," it said. The principles are intended to reduce incentives towards excessive risk taking that may arise from the structure of compensation schemes. The principles call for effective governance of compensation, alignment of compensation with prudent risk taking, effective supervisory oversight and stakeholder engagement, it said. The principles have been endorsed by the G-20 countries and the Basel Committee on Banking Supervision and are under implementation across jurisdictions, it added.

Express News

Tone up multi-tasking skills, women bank employees told

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The fourth branch

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The Indian state needs more regulatory capacity. But that demands autonomy not just for institutions, but for the people in them

RBI notifies change in single brand retail FDI policy

The Reserve Bank of India (RBI) today operationalised the change in FDI policy by removing restrictions on foreign investment limit in single brand retail. "...it has now been decided that FDI up to 100% would be permitted in single brand product trading under the government route..., the RBI said in a circular. The Department of Industrial Policy and Promotion (DIPP) had earlier increased the limit of foreign direct investment (FDI) in single brand retail from 51% to 100%. "Necessary amendments to Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000...are being notified separately," RBI added. Removal of the investment cap is likely to help global fashion brands, especially from Italy and France, to strengthen their interest in the growing Indian market. The government had said the move was aimed at enhancing competitiveness of Indian enterprises through access to global design, technologies and management practices. Though 51% FDI in single brand was allowed in February 2006, not much investment has come in the sector. During last three-and-a-half years, FDI worth only Rs 196 crore was received in the sector.

Moneycontrol

Bankrolling the banks

A fiscally challenged government would have to infuse large sums of money into PSU banks, leading inevitably to doubts about its ability to do so.

The Reserve Bank of India's (RBI) recently released draft guidelines on the proposed implementation of international norms of capital adequacy (Basel–III) would require Indian banks to mobilise huge sums of capital during the next five years. Under the existing Basel-II norms, the Indian banking industry has to maintain total capital — drawn from a combination of equity and preference shares plus long-term debt, both accorded lower priority to monies belonging to depositors — amounting to 9 per cent of their assets calibrated suitably for riskiness (‘risk-weighted assets' or RWA). While the overall ratio has been retained under the proposed new norms, a minor reshuffle has been attempted between equity/preference stock holders and long-term bond holders in the event of a bank failure, with the former having to contribute an additional one percentage point capital to their existing 6 per cent of the total 9 per cent. Further, equity/preference share holders have to come up with an additional 2.5 percentage points in capital as a buffer for any unforeseen contingencies. That takes the aggregate capital adequacy ratio (CAR) to 11.5 per cent, of which common equity alone would make up 8 per cent. The emphasis is clearly not just on meeting a broadly defined overall CAR of 8 per cent (as it was two decades ago), but also on improving the transparency and quality of the capital base. The implementation period for all these is from January 1, 2013 to March 31, 2017.  The rationale behind fashioning a tighter capital (especially core equity) regulatory regime for banks stems largely from the banking crises that followed the global recession of 2008 and also the ongoing European sovereign debt troubles. These have created renewed concerns over the banking sector's ability to withstand financial shocks and minimise risks of spill-over to the real economy. But implementation will be a huge challenge, with the estimates of fresh capital needed to be raised by all Indian banks ranging anywhere from Rs 1.4 lakh to Rs 3 lakh crore. Given the dominance of public sector banks, it would necessitate large government infusion of funds. Where this money is going to come from, if the Centre would not even be prepared to dilute its stake below 51 per cent, is a huge question mark. This issue came to the fore not too long back, when Moody's downgraded the State Bank of India's credit rating, after its Tier-1 CAR fell below the Government's own 8 per cent prescription. Related to this is the more immediate problem of rising non-performing assets (NPA) on account of loans to a host of troubled sectors from telecom and airlines to power. As these mount – under pressure from high interest rates and the general economic slowdown – banks would have to find resources to maintain even existing capital adequacy levels. The RBI, under the circumstances, cannot be totally oblivious to concerns over the proposed implementation schedule for Basel-III, which is seen to be rather frontloaded.

HBL

None yet celebrating rise in numbers

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