RBI holds back HDFC Bank’s bonus proposal, finds it 'unreasonable'

The Reserve Bank of India (RBI) has held back the proposal of HDFC Bank Ltd, the country's second largest private bank, to grant bonus to its top management team led by Aditya Puri, its Managing Director.

Sources in the industry told The Indian Express that the Department of Banking Operations and Development in the RBI is of the opinion that the bonus proposal is not "reasonable."

The RBI did not respond to a questionnaire and an HDFC Bank spokesperson said he would not comment on issues concerning the regulator.

According to an RBI circular of 2003, bonuses of directors or the top management can at best be equal to the average bonus paid to officers or employees as a percentage of their total salaries. A rival banker said the average bonus as a percentage of salary for most private banks is about 40 per cent. But given the way HDFC Bank has grown in 2008-09, even a 100 per cent bonus is not out of place, he added.

HDFC Bank's net profit jumped 41.2 per cent to Rs 2,245 crore in 2008-09. In 2008-09, when most private sector banks' lending grew on an average by just 10 per cent, HDFC Bank's balancesheet increased 37.6 per cent to Rs 1,83,270 crore. "The bank has done exceedingly well in a year marked by global financial crisis. But, the RBI does not see it that way," another banker said.

The RBI draws its powers to approve the salary and bonus of bank directors and top management from the Banking Regulation Act.

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