The top honchos of the banking sector handed over a grievance letter to Nepal Rastra Bank Tuesday, and said the central bank´s cap goes against the principle of risk management and open market norms.[break]
“We formally submitted our viewpoint and suggestions on the salary cap to NRB,” said Sashin Joshi, president of Nepal Bankers Association (NBA). He, however, refused to elaborate further, stating that NBA was yet to discuss the issue with the central bank.
However, sources said the bankers have pinpointed in the letter that the central bank´s move has infringed the authority of the boards of concerned banks and financial institutions, as the country´s existing banking law grants the authority of fixing salary and benefits of chief executives to the board of directors.
“By imposing the cap, the central bank has contradicted its own rule and norms,” NBA has assessed. “The step contradicts with the basic market norms and will not help address concerns seen in the industry.”
NBA has also tagged enforcement of cap as ´unexpected´ move. “It was unexpected particularly given the additional income tax the government imposed on high income group,” said the source.
Likewise, it has noted that the CEOs salary was never a matter of concern in Nepal. “No banks in Nepal have ever faced problems due to the salary of CEO. All the problems so far have to do with weaknesses in corporate governance,” said the source.
The central bank had imposed cap on CEOs perks and benefits on Nov 26. Under this, it has asked BFIs to limit the annual salary and allowances of chief executives to less than 5 percent of the average employee bill of last three fiscal years or less than 0.015 percent of the bank´s total assets, whichever is less.
The guideline was issued after some of the promoters, experts and lawmakers raised concerns over BFIs spending heavy amount on salary and benefits to the CEOs. Currently, the perks and benefits of a CEO of a national level commercial bank range from Rs 500,000 to Rs 2 million a month.
Although the new rule does not affect existing perks and benefits, some of the CEOs fear it could just be a starting point, and if not challenged now, the central bank could enforce it effective from any given date it might prefer. Others, on the other hand, opine that it would block innovation and entry of competent personalities in the industry.
Related story
Lending slows as banks focus on recovery of loans at fiscal yea...
