INDIA BUSINESS WORLD - JULY 2006
THE MONTH THAT WAS...

PSU BANKS GOING TO 'VE SOME LAKHY GUYS

THE finance ministry has recommended an annual incentive of Rs 10 lakh for the CEOs of public sector banks to put them at par with their counterparts in private sector banks.

The incentive, as part of the revised salary package for top rung employees of banks, was discussed by an inter-ministerial committee on Wednesday. The ministry has also suggested a Rs 6-lakh incentive package for the executive directors of the public sector banks.

The incentives will, of course, be linked to the performance of the 27 banks in terms of several factors such as profitability, credit growth, deposit mobilisation, quality of assets and recovery of non-performing assets.

 The committee was set up by the department of personnel and training after the finance ministry proposal was referred to it by the Cabinet secretary. The Cabinet secretariat had said any large-scale revision in the salary package for the chiefs of public sector banks will invite similar demands from other public sector companies too.

The inter-ministerial committee has therefore decided to examine the issue from this perspective. The committee has already held a couple of rounds of meetings to figure out the contours of the incentive scheme, earlier.

Public sector bank CEOs have repeatedly asked the finance ministry to give a better compensation package for their CEOs and EDs. They have said there was a disproportionate gap in the salary package between them and that of the private sector. This, they have claimed was drawing away talent to the other side of the fence.

The issue has figured in the deliberations of the finance ministry with the banks last month. While the ministry asked the banks to adopt more flexible and longer timings for public operations, the banks have made this demand. The finance ministry has also accepted the subject in principle.

The incentive package is also expected to include a lumpsum ex gratia payment on retirement, depending on the number of years they put in as directors on bank boards.

It is expected that the 8 lakh employees in public sector banking industry, too, will over time get incentives, based on their performance in key areas.