Monday, January 16, 2012

Reserved Bank of India

The RBI has demonstrated that it can poke its dirty nose in to any corner. For years, the RBI has been making the PSU bankers as corrupt as possible, by keeping their salaries below what an equity research analyst would get at a brokerage firm. You rarely see the kind of competence in a PSU bank that you see in a private sector bank. RBI has now issued the most devastating circular yet. (RBI/2011-12/349 DBOD No.BC.72/29.67.001/2011-12- dated 13 January 2012) Soon we will reach a time when even the salaries of the clerks in a private bank will be decided by the RBI. It is also a funny circular in the sense that it contains so many homilies like: • Compensation must be adjusted for all types of risk. • Compensation outcomes must be symmetric with risk outcomes. • Compensation payout schedules must be sensitive to the time horizon of risks. • The mix of cash, equity and other forms of compensation must be consistent with risk alignment • Supervisory review of compensation practices must be rigorous and sustained, and deficiencies must be addressed promptly with supervisory action. • Firms must disclose clear, comprehensive and timely information about their compensation practices to facilitate constructive engagement by all stakeholders. Each sentence is a gem. If the spirit of this circular has to be followed by private sector banks, the best thing is to have a dummy CEO for the sake of compliance and RBI monitoring and have a CEO who is designated outside the various positions covered by the circular. RBI is interfering in internal things of a business. I can understand that they screw up the PSU banks, since they are part of the same gang that give targets to the banks to fritter money on political causes and bosses. The hand of a frustrated government employee is visible across the circular. Frustration and envy about someone far more competent getting a higher salary.

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