The Reserve Bank of India [Get Quote] has turned down IndusInd Bank's [Get Quote] proposal to pay its new managing director and CEO Romesh Sobti, a one-time joining bonus and a severance package.

The banking regulator has also objected to the bank offering employee stock option schemes to Sobti at a price lower than that of the fair-price formula suggested by the Securities and Exchange Board of India, banking sources said.

Sobti took charge at IndusInd Bank on February 1, even though the RBI had not approved his compensation package. IndusInd Bank spokespeople did not respond to queries emailed by Business Standard on RBI's decision.

A banking source said, "RBI obviously does not want IndusInd Bank to set a precedent of offering a joining bonus and a severance package. This is a practice followed by foreign banks. The package offered by IndusInd Bank is not commensurate with the size of the bank."

Another source said the basic objection to IndusInd Bank offering Sobti ESOPs at a price lower than the Sebi-approved formula was due to an equivalent impact on the profit of the bank.

The bank needs to make a provision in the profit and loss account for the difference between the price of the ESOPs according to the formula and the actual pricing of the ESOPs, which effectively means the profit of the bank for the year would be lower to that extent.

The sources said the annual compensation to be paid to Sobti is closer to what the country's second largest bank, ICICI Bank [Get Quote], pays to its managing director and CEO, K V Kamath. In 2006-07, Kamath earned Rs 2.61 crore (Rs 26.1 million). The managing director of HDFC Bank [Get Quote], the second largest private sector bank, received about Rs 1.55 crore (Rs 15.5 million) last year.

Sources said the RBI would be comfortable if Sobti's pay package were comparable to peer banks.