On the lines of the revised Scale Based Regulatory (SBR) framework for Non-Banking Finance Companies (NBFCs) that was put in place in October 2021, the Reserve Bank of India (RBI) has issued guidelines on compensation of Key Managerial Personnel (KMPs) and senior management in NBFCs under SBR framework w.e.f. April 1, 2023.
- However, these will not be applicable to Base Layer and Government owned NBFCs.
Key Mandates to NBFCs under these Guidelines:
i.The guidelines mandates the NBFCs to formulate board approved compensation policy, as per the statutory directions, in order to address the issues arising out of excessive risk taking caused by misaligned compensation packages. The policy should include the following:
- Constitution of a Remuneration Committee
- Principles for fixed/ variable pay structures
- Malus/ Clawback provisions
ii.It also suggests dismissal of Guaranteed bonus to KMPs and senior management. NBFCs can consider joining bonus to new hires. Such bonus will not be considered part of fixed pay, and of variable pay.
Points to be noted:
i.A clawback is a contractual agreement between the employee and the NBFC in which the employee agrees to return previously paid or vested remuneration to the NBFC under certain circumstances.
ii.A malus arrangement permits the NBFC to prevent vesting of all or part of the amount of a deferred remuneration.
Formation of Nomination and Remuneration Committee:
As a part of guidelines, NBFCs will constitute a Nomination and Remuneration Committee (NRC) that will have the constitution, powers, functions and duties as laid down in section 178 of the Companies Act, 2013. It will oversee the framing, review and implementation of compensation policy of the company with the approval of the board.
- NRC will also work in close coordination with Risk Management Committee to achieve effective alignment between compensation and risks.
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RBI Modifies Norms for LIs on Short Term Crop Loan Scheme
RBI modified norms for banks to claim the amount of interest subvention scheme for short term loans for Agriculture and Allied Activities that was provided to farmers through Kisan Credit Card (KCC) during the FY22.
- Under this, pending claims for FY22 financial year can be submitted by June 30, 2023 with duly certified by the statutory auditors as true and correct.
Key Points:
i.Under the modified norms, the government offers annual interest subvention of 2% to lending institutions (LIs) to provide short term crop loans up to Rs 3 lakh to farmers at an interest rate of 7% per annum.
- LIs include Public Sector Banks (PSBs) and Private Sector Banks (in respect of loans given by their rural and semi-urban branches only), Small Finance Banks (SFBs) and computerized Primary Agriculture Cooperative Societies (PACS) which have been ceded with Scheduled Commercial Banks (SCBs).
ii.An additional 3% interest subvention is provided to farmers who pay their loans promptly. For such farmers, the effective interest rate is 4%.
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Recent Related News:
i.RBI has approved Fino Payments Bank for commencing international remittance business under the Money Transfer Service Scheme (MTSS). The approval will enable the customers of Fino Payments Bank to receive money sent from foreign countries.
ii.RBI granted a Scheduled Payment Bank status to Airtel Payments Bank by including it into the Second Schedule to the RBI Act, 1934. With this inclusion, it becomes the 4th payment bank to get this status.
About Reserve Bank of India (RBI):
Establishment– April 1, 1935
Headquarters– Mumbai, Maharashtra
Governor– Shaktikanta Das
Deputy Governors– Mahesh Kumar Jain, Michael Debabrata Patra, M. Rajeshwar Rao, T. Rabi Sankar
