The RBI said on Monday the fair value of the share linked incentives paid to CEOs, whole-time directors and other key functionaries by the private banks should be recognized as an expense during the significant accounting time frame.
The RBI has likewise asked all banks, including local, small finance banks, and foreign banks to comply with its directions for all share linked instruments granted after the bookkeeping period ending March 31, 2021.
The national bank had issued guidelines on the compensation of whole time chiefs/CEOs/material risk takers and control function staff in November 2019.
Issuing a clarification in this regard, the RBI said, “The fair value (of share linked incentives) should be perceived as cost starting with the bookkeeping time frame for which approval has been granted”.
In terms of the extant rules, share-linked instruments are needed to be fairly valued on the date of grant using the Black-Scholes model.
The RBI issued a clarification saying “it has been observed” that banks don’t recognize grants of the share-linked compensation as an expense in their books of account concurrently.