PERFORMANCE-LINKED INCENTIVE (PLI) SCHEME FOR PSBS - ECONOMY

Performance-Linked Incentive (PLI) Scheme for PSBs - ECONOMY

NEWS: The Finance Ministry aims to boost the morale of senior executives in Public Sector Banks (PSBs) through a revised Performance-Linked Incentive (PLI) scheme.

WHAT’S IN THE NEWS?

  • The intention is to discourage senior executives from leaving PSBs for more lucrative positions in the private sector.
  • The revised scheme aims to recognize and reward significant contributions that create value for stakeholders.

Expansion of Scheme

  • The original PLI scheme was only for Whole-Time Directors (WTDs), which included:

·         Managing Directors (MD) & Chief Executive Officers (CEOs)

·         Executive Directors (EDs)

  • The revised PLI scheme now includes:

·         Senior executives at the rank of Chief Manager and above.

·         The expansion seeks to address the compensation disparity between PSB executives and their private sector counterparts.

Compensation Disparity

  • Significant pay differences exist between senior executives in PSBs and private sector banks for similar roles.
  • The revised scheme aims to narrow this gap and make PSB roles more financially competitive.

PLI Ceiling for Different Ranks

  • MD & CEOs and Executive Directors:

·         PLI ceiling set at 100% of their annual basic pay.

  • Chief General Manager (CGM) and General Manager (GM):

·         PLI ceiling set at 90% of their annual basic pay.

  • Deputy General Manager (DGM) and Assistant General Manager (AGM):

·         PLI ceiling set at 80% of their annual basic pay.

  • Chief Manager:

·         PLI ceiling set at 70% of their annual basic pay.

Eligibility Criteria for PLI

  • All permanent employees from Chief Manager and above are eligible, including:

·         Lateral hires.

·         Officers on deputation.

  • PLI will be disbursed in cash, paid in a single tranche.

Committee for Governance and Assessment

  • A committee will oversee the governance of the PLI scheme:

·         Chair: Secretary (Department of Financial Services - DFS)

·         Members: Additional Secretary (DFS), Joint Secretary (Banking), and Chief Executive of the Indian Banks' Association (IBA).

  • Responsibilities include:

·         Assessing governance mechanisms in PSBs.

·         Deciding which banks qualify under the PLI scheme.

·         Evaluating the eligibility or ineligibility of individual officers for PLI.

Bank Eligibility Criteria

  • Banks must meet at least three out of four criteria to be eligible for the PLI scheme:
    1. Positive Return on Assets (RoA).
    2. Net Non-Performing Asset (NPA):
      • Should not exceed 1.5%.
      • If over 1.5%, there must be a reduction of at least 25 basis points in the net NPA from the start of the financial year.
    3. Cost to Income Ratio (CIR):
      • Should not exceed 50%.
      • If over 50%, there should be a year-on-year improvement.
    4. Capital to Risk-Weighted Assets Ratio (CRAR):
      • Must meet the regulatory requirement plus an additional 200 basis points.

Performance Evaluation Parameters

  • Banks' performance will be judged using a matrix of four equally weighted criteria:
    1. Efficiency.
    2. Business Performance.
    3. Asset Quality.
    4. Financial Inclusion:
      • Includes reforms to improve access and service excellence.

Approval of PLI Payments

  • Whole-Time Directors (WTDs): Approval for PLI payments will come from the government.
  • Senior Executives: Approval will be given by the board of the respective bank.