All banks pay the same wages set during industry-wide wage revisions, no matter their size or financial strength. In today’s competitive banking environment, there’s a need to allow banks to give extra pay to employees based on the bank’s profitability and financial health.
To encourage competition and reward performance, a Performance Linked Incentive (PLI) Scheme has been introduced in Public Sector Banks.
FINALIZATION OF THE PLI MATRIX
Eight main criteria were decided for the PLI (Performance Linked Incentive) Matrix:
1.CASA (Current Account Savings Account):
This measures the proportion of deposits in current and savings accounts. It is an important indicator of a bank’s liquidity and cost of funds. Higher CASA ratios generally indicate a stable and low-cost funding base.
2. NPA (Non-Performing Assets):
This represents loans or advances that are in default or in arrears on scheduled payments of principal or interest. Lower NPAs are better, as they indicate that fewer loans are likely to be written off as losses.
3. SMA (Special Mention Accounts):
These are accounts that show symptoms of bad asset quality in the initial stage. Monitoring SMA helps in early identification and management of potential NPAs.
4. Non-Interest Income:
This includes revenue from sources other than interest on loans, such as fees, commissions, and trading income. Higher non-interest income can diversify a bank’s revenue streams and reduce reliance on interest income.
5. Total Business:
This is the sum of the bank’s total deposits and advances. It gives an overall picture of the bank’s size and operational scale.
6. Profitability:
This measures the bank’s ability to generate profit from its operations. Higher profitability indicates a well-managed bank with effective cost control and revenue generation.
7. ROA/ROE (Return on Assets/Return on Equity):
ROA measures how effectively the bank is using its assets to generate profit, while ROE measures how effectively the bank is using shareholders’ equity to generate profit. Both are key indicators of financial performance.
8. Government Schemes:
Participation and performance in government schemes can indicate a bank’s alignment with national financial inclusion and development goals.
Each bank can choose 4-5 of these criteria to finalize at their own board meetings based on their strategic priorities and strengths.
NEW PERFORMANCE RANGES
A new system of 11 performance ranges was introduced, from 5% to 15%. If a bank’s performance in the fixed parameters is, for example, 8%, they will get 8 days of PLI. If it’s 14%, they will get 14 days, and so on.
This new system provides more granular recognition of performance compared to the previous system, which had only three ranges: 5%, 10%, and 15%.
This new PLI scheme will start from the 2023-24 fiscal year. The Indian Banks’ Association (IBA) will inform the 12 banks, and each bank will need to approve it in their board meeting before releasing the amounts.
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MEDICAL SCHEME
Several points were agreed upon in principle regarding the medical scheme:
1. Combined Policy:
A single policy will cover both current employees and retirees. This approach aims to reduce the premium costs for retirees by spreading the risk across a larger pool of insured individuals, which can lead to lower overall costs.
2. Bank Participation Choice:
Each bank can decide whether to participate in this policy. This allows banks the flexibility to choose the best option based on their specific circumstances and the needs of their employees and retirees.
3. Uniform Schemes:
The medical schemes will be standardized across all participating banks. This ensures that all employees and retirees receive the same benefits, regardless of which bank they are affiliated with.
4. Float RFP:
A Request for Proposal (RFP) will be issued after receiving consent from the banks. The RFP process will allow banks to solicit competitive bids from insurance providers, ensuring that they get the best possible terms and coverage.
5. Critical Illness Coverage:
Separate quotes will be obtained for critical illness coverage for current employees. This specialized coverage ensures that employees are protected against significant health issues that could lead to major financial burdens.
These points will be discussed further in the next meeting, which will take place once all banks have given their mandate. This ensures that all banks are on board and any concerns or suggestions can be addressed before final implementation.
PERFORMANCE LINKED INCENTIVE (PLI) IN PUBLIC SECTOR BANKS (OLD ONE)
This scheme, which is optional for private and foreign banks, will pay employees an annual bonus based on the bank’s Operating Profit or Net Profit, in addition to their regular salary.
In old scheme PLI amount will be determined by the bank’s performance using the following matrix:
Year-over-Year Growth in Operating Profit:
Less than 5%: No bonus
5% to 10%: 5 days of pay
More than 10% to 15%: 10 days of pay
More than 15%: 15 days of pay
The 10 and 15-day bonuses are only given if the bank has a Net Profit. If a bank has at least a 5% growth in Operating Profit but no Net Profit, employees will still receive a 5-day bonus.
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