RBI Lays Down Guidelines on Compensation of Key Managerial Personnel (KMP) and Senior Management in NBFCs

The Reserve Bank of India (RBI) vide Circular No. DOR.GOV.REC.No.29/18.10.002/ 2022-23 dated 29th April 2022 lays down Guidelines on Compensation of Key Managerial Personnel (KMP) and Senior Management in NBFCs.

The Circular is Given Below:

As you are aware, a revised Scale Based Regulatory (SBR) framework for NBFCs was put in place vide circular DOR.CRE.REC.No.60/03.10.001/2021-22 October 22, 2021. In terms of para 3.2.3 (h) of the said circular, in order to address issues arising out of excessive risk taking caused by misaligned compensation packages, NBFCs are required to put in place a Board approved compensation policy. The policy shall at the minimum include, (a) constitution of a Remuneration Committee, (b) principles for fixed/ variable pay structures, and (c) malus/ clawback provisions. Further, in terms of para 3.2.3 (i) it was also decided that the Board of NBFCs should delineate the role of various committees, including Nomination and Remuneration Committee (NRC). It was envisaged that detailed circulars will be issued in due course by the Reserve Bank. Accordingly, these guidelines have now been framed and furnished in Annex.

2. The guidelines are intended only for providing broad guidance to NBFCs and their NRCs in formulating their compensation policy. While formulating the compensation policy, it has to be ensured that all statutory mandates and the rules and directions issued under them are fully complied with.

3. These guidelines will be applicable for fixing the compensation policy of Key Managerial Personnel1 and members of senior management2 of all Non-Banking Financial Companies under SBR framework, except those categorised under ‘Base Layer’3 and Government owned NBFCs.

4. These guidelines shall come into effect from April 01, 2023.

For Official Circular Download PDF Given Below: