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In a bid to lift the spirits of senior executives of public sector banks (PSBs), the Finance Ministry has unveiled a performance-linked incentive (PLI) scheme. This move, in a way, seems to be an attempt to ensure that they don’t leave for greener pastures in the private sector.
The revised PLI scheme, drawn up by the ministry’s Department of Financial Services (DFS), seeks to suitably reward and motivate employees for significant value creation for various stakeholders.
Umbrella of eligible employees expanded
The earlier PLI scheme was restricted only to Whole-Time Directors (WTDs) – MD & CEOs and Executive Directors. But the revised scheme is also applicable to senior executives in the rank of Chief Manager and above.
This, to an extent, will bridge the existing wide compensation disparity between senior executives of PSBs and private sector banks (PvSBs). For the same level of job responsibility and rank, a senior executive of a PvSB currently draws multiple times the remuneration of a PSB executive.
The PLI ceiling for Managing Director & Chief Executive Officers and Executive Directors of nationalised banks and Chairman, Managing Directors and Deputy Managing Directors of State Bank of India has been pegged at 100 per cent of their annual basic pay.
The PLI ceiling for senior executives in the rank of Chief General Manager and General Manager; and Deputy General Manager and Assistant General Manager is pegged at 90 per cent and 80 per cent, respectively, of their annual basic pay. For Chief Manger, this ceiling is at 70 per cent.
All permanent employees, including lateral hires and officers on deputation, in the rank of Chief Manager and above will be eligible for PLI. The PLI will be paid in cash in a single tranche.
Committee for implementing PLI
A committee, headed by the Secretary (DFS) and comprising Additional Secretary (DFS), Joint Secretary (Baking) and Chief Executive of IBA as its members, will assess the governance mechanism in PSBs for the PLI.
After the assessment, the committee will list the banks eligible to be considered under the PLI Scheme. It may also decide on (in)eligibility of officer(s) for the PLI scheme.
Eligibility criteria
For any bank to be eligible to operate the PLI Scheme, it has to meet at least three out of four criteria, including positive return on assets (RoA) and net non-performing asset (NPA) at not more than 1.5 per cent, or in case if Net NPA is more than 1.5 per cent then reduction of 25 basis points or more in opening net NPA of the financial year.
The other criteria are: cost to income ratio (CIR) at not more than 50 per cent or in case it is more then there should be at least a year-on-year improvement in CIR; and capital to risk-weighted assets ratio as per the minimum regulatory requirement plus 200 basis points or more.
Banks’ performance will be evaluated based on an evaluation matrix comprising four equally-weighted evaluation parameters – efficiency, business, asset quality and Financial Inclusion (including Enhanced Access and Service Excellence reforms).
As per the scheme, approval of PLI payment will be done by the government for WTDs; and the board of the bank for senior executives.
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