The Reserve bank of India (RBI) has said that the fair value of the share-linked incentives paid to chief executive officers (CEOs), whole-time directors and other key functionaries by the private banks should be recognised as an expense during the relevant accounting period.

The Reserve Bank has also asked all banks, including local area banks, small finance banks and foreign banks to comply with its directions for all share-linked instruments granted after the accounting period ending March 31, 2021. The central bank had issued guidelines on the compensation of whole-time directors/ chief executive officers/ material risk takers and control function staff in November 2019. Issuing a clarification in this regard, the Reserve Bank of India said, "the fair value (of share-linked incentives) ...should be recognised as expense beginning with the accounting period for which approval has been granted".

In terms of the extant guidelines, share-linked instruments are required to be fairly valued on the date of grant using the Black-Scholes Merton (BSM) model. For the purpose of inclusion of such share-linked instruments in the bank's compensation policy, they should be fair valued on the date of grant by the bank using BSM model, the central bank had then said.

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