The Indian central bank, Reserve Bank of India, has laid down guidelines for compensation of executives at private and foreign banks. The guidelines based on the recommendations of the International Financial Stability Board (FSB) do not prescribe any quantitative limit on absolute pay, but deal with the structure of pay, which in the past favored excessive risk taking. According to the notification issued by the RBI to all private sector and foreign banks operating in India, employees were too often rewarded for increasing the short-term profit without adequate recognition of the risks and long-term consequences that their activities posed to the organizations. The principles are intended to reduce incentives towards excessive risk taking that may arise from the structure of compensation schemes while calling for effective governance of compensation, alignment of compensation with prudent risk taking, effective supervisory oversight and stakeholder engagement. Accordingly, guaranteed bonuses have been banned and risk management staff will have more of fixed component than the rest.
As per the guidelines, foreign banks operating in India will be required to submit a declaration to RBI 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.