The government has announced a revised performance-linked incentive (PLI) scheme for full-time directors and senior executives of public sector banks (PSBs). According to the notification issued on Tuesday, a committee chaired by the financial services secretary will evaluate governance mechanisms during the PLI period and identify eligible banks.
Key Highlights of the PLI Scheme:
- Purpose of the Scheme:
- The scheme is designed to reward senior bank executives based on their bank’s performance across key metrics, encouraging better governance and operational efficiency.
- Committee Oversight:
- A committee led by the financial services secretary will oversee the evaluation process. It will assess governance mechanisms in PSBs during the PLI period and determine which banks qualify for incentives.
- Exclusion of Stock Options:
- Unlike expectations, the scheme does not include Employee Stock Option Plans (ESOPs) as part of the rewards for top management. The focus is solely on cash-based incentives.
- Eligibility Criteria for Banks:
- Banks need to meet at least three of these performance benchmarks:
- Positive Return on Assets (RoA): This indicates profitability.
- Net NPAs below 1.5%: Reflects good asset quality.
- CRAR 200 basis points above regulatory minimum: Ensures strong capital adequacy.
- Cost-to-Income Ratio ≤ 50%: Shows operational efficiency.
- Banks need to meet at least three of these performance benchmarks:
- Performance Evaluation Matrix:
- The evaluation matrix consists of four key parameters, each carrying equal weight:
- Efficiency: How well resources are utilized.
- Business Growth: Expansion and profitability.
- Asset Quality: Quality of loans and risk management.
- Financial Inclusion: Efforts to extend banking services to underserved areas.
- The evaluation matrix consists of four key parameters, each carrying equal weight:
- Periodic Updates:
- The evaluation framework, including parameters and methodology, will be periodically updated by the committee to reflect changing priorities and government focus areas.
- Who is Eligible for PLI?
- All permanent employees in scale IV and above are eligible.
- For top executives like Executive Directors, Managing Directors, and the SBI Chairman, the PLI is capped at 100% of their annual pay.
PLI Ceiling for Each Category
| Grade | PLI Ceiling as % of Annual Basic Pay |
|---|---|
| EDs and MDs of Nationalised Banks, DMDs, MDs, and Chairman of SBI | 100% |
| Scale VII and Scale VIII | 90% |
| Scale V and Scale VI | 80% |
| Scale IV | 70% |
Payment Terms:
- The entire incentive will be paid in cash and typically in a single installment.
Implementation Timeline:
The scheme will be effective starting from FY24 (Financial Year 2024).
Why is This Important?
- Encourages Better Performance: By linking incentives to measurable metrics, it motivates banks to improve their efficiency, profitability, and financial health.
- Aligns with National Goals: The inclusion of financial inclusion in the evaluation parameters ensures that banks contribute to broader social and economic development objectives.
- Streamlines Governance: Regular reviews of the evaluation matrix allow the scheme to remain relevant to evolving priorities.
This scheme represents a significant shift in how public sector banks reward their senior executives, focusing on performance and accountability.