What changed
The ceiling on fixed remuneration for Non-Executive Directors (NEDs), excluding the Board Chair, has been increased from ₹20 lakh to ₹30 lakh per annum. Banks must now set criteria for granting this remuneration with Board approval, and the Board may fix a lower amount based on factors like bank size and NED experience. The earlier 2015 guidelines on NED compensation have been repealed.
What it means for you
This revision allows banks to offer higher fixed pay to attract and retain qualified NEDs, strengthening board governance. Banks must ensure Board-approved criteria are in place before any review of existing remuneration. Private sector banks still need RBI approval for Part-time Chairman remuneration under the Banking Regulation Act.
What you must do
- Update board-approved policy for NED fixed remuneration with clear criteria (e.g., bank size, NED experience).
- Ensure any review of existing NED remuneration is preceded by Board approval of the criteria.
- For private sector banks, continue to seek RBI approval for Part-time Chairman remuneration as per Section 10B(1A)(i) and 35B of the Banking Regulation Act, 1949.
- Disclose annual remuneration paid to directors in the Annual Financial Statements.
Who it affects
Private sector banks, Small Finance Banks (SFBs), Payment Banks (PBs), Wholly owned subsidiaries of foreign banks in India, Non-Executive Directors (NEDs) of these banks
Does the new ₹30 lakh cap apply to the Board Chair as well?
No, the revised ceiling of ₹30 lakh per annum applies only to Non-Executive Directors other than the Chair of the Board. Remuneration for Part-time Chairmen in private sector banks still requires separate RBI approval.
Can a bank pay less than ₹30 lakh to its NEDs?
Yes, the Board may fix a lower amount within the ₹30 lakh ceiling, considering factors like the bank's size, the NED's experience, and other relevant criteria.
When does this circular take effect?
The instructions come into force with immediate effect from the date of the circular, February 9, 2024.