Let me emphasize- the last thing RBI would like to do is to decide remuneration of individual bank executives which is essentially a board / NRC function. But there are at times situations where the internal and external equity of such compensation is not adequately justified in the proposal.
We need to remember that perverse incentives may lead to reckless behaviour or higher risk taking which may manifest itself over a period. The compensation practices, where employees were often rewarded for increasing short-term profit without adequate recognition of the risks and long-term consequences amplified excessive risk taking that severely threatened the global financial system in 2008. Concluding thoughts 22.