Revamped Incentive Scheme Boosts Public Sector Bank Performance

The central government has revised its performance-linked incentive scheme to enhance motivation for top executives in public sector banks. The new scheme requires banks to meet specific financial criteria and rewards employees demonstrating substantial value creation. It is applicable retrospectively from the financial year 2023-24.

In a significant move to bolster the financial performance of public sector banks, the central government has revised its performance-linked incentive (PLI) scheme for whole-time directors and senior executives. This decision, disclosed by the Department of Financial Services under the Ministry of Finance, aims to better reward and motivate these key employees to foster significant value creation for stakeholders, according to a statement released on November 19.

To qualify for the updated PLI scheme, banks must satisfy at least three out of four specified financial criteria. These requirements include a positive return on assets, maintaining net NPA at no more than 1.5%, or reducing it significantly if higher; ensuring a cost-to-income ratio of not more than 50%, or showing annual improvement; and meeting the minimum regulatory Capital to Risk (Weighted) Assets Ratio.

The performance assessment will hinge on each bank's audited figures ending March 31 of the prior financial year. Eligibility for the incentive encompasses all permanent employees in scale IV and above, including lateral recruits and officers on deputation, but excludes those dismissed, removed, or terminated from service. The PLI, paid in one cash tranche, is effective from the 2023-24 financial year.

(With inputs from agencies.)