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RBI Clarifies Expense Recognition for Share-Linked Compensation

No longer current — withdrawn, no replacement on file yet
Source: Reserve Bank of India · RBI/2021-22/95 · issued 30 Aug 2021 · ~1 min read
Quick answerRBI now mandates that banks must recognise the fair value of share-linked compensation as an expense from the accounting period when approval is granted, effective for instruments granted after March 31, 2021.

What changed

RBI added a sentence to existing guidelines requiring that the fair value of share-linked instruments, calculated using the Black-Scholes model, be recognised as an expense starting from the accounting period for which approval was granted. Previously, banks were not consistently booking this expense concurrently with the grant.

What it means for you

Banks must now align their accounting practices to record share-linked compensation costs upfront, impacting profit and loss statements earlier. This ensures transparency and consistency in expense recognition, potentially reducing deferred compensation liabilities.

Historical instruction — do not use for current compliance. This is what was required at the time; it no longer reflects current RBI requirements. If no replacement rule is linked above, that only means none is recorded on our register yet — it does not prove no later applicable rule exists. Confirm on the official RBI source below.

What banks were required to do at the time

Who it affects

Private sector banks, Local area banks, Small finance banks, Payments banks, Foreign banks operating in India

❓ Common questions

Regulatory timeline

Built from our lineage records — each fact carries its provenance; missing history simply is not shown (never guessed).

What is the effective date for this clarification?

The instruction applies to all share-linked instruments granted after the accounting period ending March 31, 2021.

Does this change the valuation method for share-linked instruments?

No, the valuation method remains the Black-Scholes model as per the original 2019 guidelines. Only the timing of expense recognition is clarified.

📜 This document’s life story (1 recorded event, each backed by RBI’s own words)
Repealed by RBI/2025-26/100 — Consolidation of Regulations — Withdrawal of circulars (28 Nov 2025)
RBI’s words: “Official withdrawal register entry #286: DOR.GOV.REC.44/29.67.001/2021-22 — "Guidelines on Compensation of Whole Time Directors/ Chief Executive Officers/ Material Risk Takers and Control Function sta”
📜 Read the original circular — full text as issued by RBI
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 our circular DOR.Appt.BC.No.23/29.67.001/2019-20 dated November 04, 2019 on the captioned subject. In terms of the extant guidelines, share-linked instruments are required to be fair valued on the date of grant using Black-Scholes model. However, it has been observed that banks do not recognise grant of the share-linked compensation as an expense in their books of account concurrently. Therefore, in the interest of better clarity, the following sentence is being added to the extant instructions contained in the said paragraph: “The fair value thus arrived at should be recognised as expense beginning with the accounting period for which approval has been granted”. 2. Banks should ensure compliance to above instructions for all share-linked instruments granted after the accounting period ending March 31, 2021. Yours faithfully, (Shrimohan Yadav) Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2021-22/95 · issued 30 Aug 2021. The plain-English explanation above is BankPulse’s own independent summary.
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BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly).
Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12157&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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