Guidelines on Compensation of Whole Time Directors/ Chief Executive Officers/ Material Risk Takers and Control Function staff - Clarification

Last updated: 31 August 2021

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The Reserve Bank of India (RBI) has issued a clarification regarding the compensation of Whole Time Directors, Chief Executive Officers, Material Risk Takers, and Control Function staff in banks. The clarification focuses on the accounting treatment of share-linked instruments. Previously, these were required to be fair-valued using the Black-Scholes model at the time of grant. Now, banks must recognise the fair value of these instruments as an expense from the accounting period for which approval has been granted. This applies to all share-linked instruments granted after the accounting period ending March 31, 2021.

Reserve Bank of India RBI/2021-22/95 DOR.GOV.REC.44/29.67.001/2021-22 August 30, 2021 All Private Sector Banks (including Local Area Banks, Small Finance Banks, Payments Banks) and Foreign Banks operating in India Dear Sir/Madam, Guidelines on Compensation of Whole Time Directors/ Chief Executive Officers/ Material Risk Takers and Control Function staff Clarification Please refer to para 2.1.2 (f) of ourcircular DOR.Appt.BC.No.23/29.67.001/2019-20 dated November 04, 2019on t

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FAQ :

The notification clarifies the guidelines on the compensation of Whole Time Directors, Chief Executive Officers, Material Risk Takers, and Control Function staff in banks, specifically concerning share-linked instruments.

The RBI has clarified that the fair value of share-linked compensation, calculated using the Black-Scholes model, must now be recognised as an expense from the accounting period for which approval has been granted.

Banks must comply with these instructions for all share-linked instruments granted after the accounting period ending March 31, 2021.

All Private Sector Banks (including Local Area Banks, Small Finance Banks, Payments Banks) and Foreign Banks operating in India are affected.

The Black-Scholes model is to be used for the fair valuation of share-linked instruments on the date of grant.

Notification No : RBI/2021-22/95 DOR.GOV.REC.44/29.67.001/2021-22
Source : https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12157&Mode=0

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