RBI Issues Circular On Levying Unfair Interest Charges On Customers

The watchdog has also changed the nomenclature ‘key employees’ with ‘designated employees’.

Capital market regulator Sebi has majorly amended its circular on compensation to ‘key employees’ of asset management companies (AMCs). The original circular had mandated AMCs to pay 20% of the compensation to ‘key employees’ of AMCs in the form of mutual fund (MF) units. This is seen as a bid to realign the interests of executives in the mutual fund industry with that of MF investors.

Amendments

Days ahead of the implementation of new norms on October 1, the Securities and Exchange Board of India (Sebi) has said that those under 35 years of age or ‘junior employees” would have to invest only 10% of their compensation in MF units of the fund house in the first year, and 15% in the second year beginning October 1 next year, while it is 20% for the other employees, the Business Standard has reported.

The Chief Executive Officer (CEO), the head of the department, and other fund managers, even if they are below 35 years of age, will not get this benefit, it added.

The Sebi had said that a minimum of 20% of gross annual CTC, net of income tax and any statutory contributions (i.e., PF and NPS), of key employees of AMCs will be paid in the form of units of MF schemes in which they have a role of oversight.

The regulator has now clarified that benefits and gratuity paid at the time of death or retirement will not be included in the CTC. The value of interest on loans availed by the employees against the units from the AMC will also not be included in the CTC.

The watchdog has also changed the nomenclature ‘key employees’ with ‘designated employees’.

Industry concerns

The Business Standard quoted a senior industry executive from the industry as saying, “While there have been some concessions given by the regulator, there are too many complexities in this circular.”

The industry had also pointed out that ‘key employees’ included those who had nothing to do with fund management.

“Principally, the concept of ‘skin in the game’ is a very good one, especially where it involves managing other people’s money. In an ideal situation, one or two fund houses could have done so, and the rest would be forced to follow the example. However, that’s not the real world we live in,” Business Standard quoted Dhirendra Kumar, CEO, Value Research, as saying in its report,