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Ceiling on Remuneration of Non-Executive Director Revised to 30 Lakhs

On April 26, 2021, the Reserve Bank of India (RBI) issued guidelines regarding the appointment, age, tenure and remuneration of non-executive directors (NEDs), /MD&CEO/Whole time Directors (WTDs), and the Chair and meetings of the Board of the bank, in order to address a few operational aspects of a Discussion Paper titled “Governance in Commercial Banks in India”. A thorough assessment of the framework was conducted in light of the comments that were received and a maximum limit of Rs. 20 lakhs per annum was set for the remuneration of a NED.

 

On review, the RBI on February 9, 2024, issued further guidelines on Fixed Remuneration granted to Non-Executive Directors (NEDs) vide circular No RBI/2023-24/121. Dor.HGG.GOV.REC.75/29.67.001/2023-24, to revise the maximum limit of remuneration of NEDs to a ceiling of Rs. 30 lakhs. The guidelines came into force on February 9, 2024, and are applicable to all Private Sector Banks including Small Finance Banks (SFBs) and Payment Banks (PBs) and wholly owned subsidiaries of Foreign Banks.

 

According to the revised guidelines, prior to the review of existing remuneration, the banks must have appropriate criteria for awarding their NEDs fixed compensation, with board approval. Based on the size of the bank, the NEDs expertise, and other pertinent variables, the Board of the bank may decide to set a minimum amount within the ₹30 lakh annual ceiling. Banks must disclose in their Annual Financial Statements the minimum amount of remuneration paid to the Directors each year.