India Wants to Cap Banker Bonuses That Encourage Risky Behavior
India’s financial-sector regulator wants to link bankers’ pay more closely with their performance.
(Bloomberg) -- India’s financial-sector regulator wants to link bankers’ pay more closely with their performance, as authorities look to clean up an industry reeling under a pile of bad loans and a slew of scandals.
The Reserve Bank of India late Monday announced guidelines that cap the amount of variable pay, limit how much of it can be given in cash, and restrict guaranteed bonuses. It also asked banks to put in place a mechanism to “clawback” deferred payments in case the firm performs poorly.
The rules are “intended to reduce incentives towards excessive risk taking that may arise from the structure of compensation schemes,” the RBI said. The new guidelines take effect April 1, 2020.
Policy makers would be hoping that tighter rules on pay will help discipline top bankers in the private sector, several of whom have been accused of flouting lending regulations to boost the business. Fresh guidelines on salaries for risk-control staff may also motivate them to catch irregularities that have led to massive frauds in India’s banking system.
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The new guidelines come as some private banks try to claw back executive pay for alleged lending improprieties.
The regulator last year also delayed year-end bonuses to the heads of top private banks and questioned the size of the payouts citing the lenders’ performance issues.
To contact the reporter on this story: Suvashree Ghosh in Mumbai at sghosh186@bloomberg.net
To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Jeanette Rodrigues, Karthikeyan Sundaram
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