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    PSU banks’ top brass may miss bonus for not meeting targets

    Synopsis

    Senior banks officials said the targets set by finance ministry for CMDs and executive directors of PSU banks are very stringent and unrealistic.

    ET Bureau
    MUMBAI: It’s not just the ICICI Bank top brass who will forego bonus this year. CEOs and executive directors of all the state-run banks, too, will not receive any bonus for 2015-16.

    However, there’s a subtle difference: while the top private lender has chosen to skip payout, PSU banks’ top officials will not be entitled to bonus as their banks have missed the parameters laid down for bonus payout.

    Most banks in the country, including ICICI Bank, are faced with mounting bad loans, particularly after the Reserve Bank of India told them to reclassify 150 accounts as substandard and make proactive provisions of stressed loans.

    The RBI exercise, known as asset quality review (AQR), led to many banks reporting losses in the third and fourth quarters of last fiscal. Punjab National Bank, for example, has reported a record Rs 5,367 crore lossess for the fourth quarter while Bank of Baroda reported losses ofRs 6,572 crore for six months ended March.

    To add to the banks’ woos, their earnings remained muted as loan growth slowed to a 50-year low in 2015-16 even as recovery from defaulters remained a challenge.

    Image article boday


    Also, in 2015-16, the government revised the framework for setting targets for banks: now it’s the government that does it while earlier bank managements set the goals for themselves. Only banks that meet their targets are eligible for bonus. Senior banks officials said the targets set by finance ministry for CMDs and executive directors of PSU banks are very stringent. “Even without AQR, the targets set by the finance ministry were very unrealistic,” said a bank chief who did not want to be named.

    The targets known as Key Performance Indicator, or KPI, had various sub-targets such as 1% reduction in gross NPA (as a percentage of total asset).

    But most banks reported 3% to 6% rise in their gross NPAs. Another parameter is 20 basis point rise in return on asset (RoA). Most banks have reported a negative RoA. The targets also include 3% rise in return on equity, 2.5% reduction in overall cost, and 10% recovery of bad loans.

    In the past, banks would set targets for themselves on parameters listed by the finance ministry.

    “Even as there is a wide parity between the bonuses that PSU and private bankers receive, achieving targets reflected well on the EDs’ performance when it comes to selection for the CEOs post,” said a bank CEO who did not want to be named.

    Bonus for top PSU bankers is usually in the range of Rs 10-12 lakh while ICICI Bank CEO Chanda Kochhar received a payout of Rs 1.66 crore in 2014-15.


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