The Reserve Bank of India, citing its powers as banking regulator, has put on hold the salaries of Chief Executive Officers of three private sector banks, ING Vysya Bank, Axis Bank and Development Credit Bank, arguing that these are inflated and not in sync with the market.
Incidentally, all three banks have recently hired CEOs from outside their ranks. Shikha Sharma, for instance, joined Axis Bank, the third largest private bank in India, as its Managing Director and CEO from ICICI Prudential Life Insurance Company where she was the Managing Director and CEO.
Murali Natrajan has joined as CEO of Development Credit Bank from Standard Chartered Bank where he was the global head for SME (Small and Medium Enterprise) banking. Gautam Vir is yet to join ING Vysya Bank following the RBI’s objection. He was CEO of Development Credit Bank earlier.
The RBI derives its powers to intervene on issues such as compensation of bank CEOs from the Banking Regulation Act. In fact, the Act empowers the RBI to even issue directions to banks to fix salaries at certain levels.
In the case of Shikha Sharma, the central bank did not find her new compensation package justifiable. It has written back to the bank suggesting an alternate and “acceptable” package. Sharma refused to comment but confirmed that the RBI did not agree with the package originally offered to her by Axis Bank. Vir and Natrajan were unavailable for comment.
When contacted, an RBI spokesperson said the central bank would respond only tomorrow.
The salaries of the CEOs, decided by their boards, are not known. But Sharma, who joined Axis Bank yesterday, had an annual salary package of about Rs 2.03 crore in her previous job at ICICI Pru Life Insurance Company, according to an ICICI bank executive. Vaughn Richtor, who retired as ING Vysya’s CEO recently, had an annual salary of Rs 1.1 crore.
At ICICI Pru, Sharma was in the same salary bracket as Chanda D Kochhar, the new MD and CEO of ICICI Bank, the latter’s annual cost to company being Rs 2.05 crore, which was approved by the RBI in February this year.
Kochhar’s predecessor KV Kamath had an annual salary of Rs 2.8 crore. Now he gets an honorarium of Rs 20 lakh a year as ICICI Bank’s non-executive Chairman.
Though the RBI does not have clear guidelines or parameters on CEO compensation in banks, it is said to be guided by the size of the banks. Multinational banks, though under RBI’s regulatory framework, escape such strictures. In India, according to a banker in a top private bank, the CEO salaries can be broadly categorized thus: Rs 1 crore for public sector banks; Rs 2-3.5 crore for private sector banks and Rs 8-9 crore for foreign banks.
Sources said the RBI cites the public outrage in the US against banking CEOs’ salaries and subsequent moves on salary caps. However, US salaries (which include bonuses and stock options) run into millions of dollars. And the caps imposed apply to only those banks that have used taxpayers’ money for a bailout.
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Never knew RBI can interfere in the packages! Great info! Thanks for sharing my friend. 🙂