DFS PLI Scheme for Senior Executives of Public Sector Banks (Scale IV and Above including Directors) [PDF]

The Department of Financial Services (DFS) had launched a new Performance Linked Incentive (PLI) scheme for senior executives and whole-time directors (WTDs) of Public Sector Banks on 19 November 2024. In this article, we will understand this new PLI scheme, and you can download PDF of this new PLI scheme from the link given below.

Eligibility for Public Sector Banks to Pay Performance Linked Incentive (PLI) to Senior Executives

The PLI shall normally be paid in a single tranche in cash. For any bank to be eligible to operate the PLI Scheme, at least 3 out of the following 4 criteria have to be met:

• RoA positive
• Net NPA at not more than 1.5% or in case if Net NPA is more than 1.5% then reduction of 25bps or more in opening Net NPA of the financial year.
• Cost to Income Ratio at not more than 50% or in case if the CIR is more than 50% then at least y-o-y improvement in CIR.
• CRAR at Min. Regulatory Requirements +200bps or more.

Amount of PLI to be paid by Banks to Senior Executives (Scale IV and above till Whole Time Directors) as per DFS Circular 2024

All permanent employees, including lateral hires and officers on deputation, in scale IV and above shall be eligible for PLI. The amount of PLI that will be paid to senior bank executives is as follows:

• EDs and MDs of Nationalised Banks and DMDs, MDs and Chairman of SBI — 100% of annual basic pay
• Scale VII and Scale VIII — 90% of annual basic pay
• Scale V and Scale VI — 80% of annual basic pay
• Scale IV — 70% of annual basic pay

This means that is annual basic pay of MD is Rs.20 lac then he may get PLI upto Rs.20 lac. This means he can get double salary. But there’s a catch. All officers may not get the same PLI. Maximum permissible PLI will be calculated as per Bank’s overall performance score, Individual’s performance and the maximum permissible ceiling in the scale of the executive.

How much PLI will be actually paid to senior executives of Banks?

PLI for Scale IV to Scale VIII:

If you have a detailed look at the table above, you will understand that PLI will not be paid equally to all senior executives. Let’s start with Scale IV. Scale IV has been allowed PLI upto 70% of annual basic pay. But this will be paid to Top 20% Scale IV officers only if Bank Score is more than 80%. This Bank score is calculated via various parameters and it’s very difficult for banks to get more than 80% score. Normally, all banks fall between 40% to 60% criteria. This also means that the performance of Scale IV officers will be evaluated on individual basis. Public Sector Banks have launched a portal for assessment of performance of employees such as SBI has grading system and PNB has PAF score. This performance is evaluated as per the targets achieved and various other parameters.

Suppose a bank has 1000 Scale IV Officers. If the score of Bank is more than 80% then Top 20% will get 100% PLI i.e. 70% of annual basic pay. Let’s get more realistic and choose the bracket of 60% to 80% as it’s very difficult to achieve more than 80% bracket. So, around 200 Scale IV officers will get 80% of the PLI i.e. 80% of 70% of annual basic pay. Other 200 Scale IV Officers will get 70% of the PLI i.e. 70% of 70% of annual basic pay. Other 200 Scale IV Offices will get 50% of the PLI i.e. 50% of 70% of annual basic pay. Other 200 Scale IV Officers will get 30% of PLI i.e. 30% of 70% of annual basic pay and the remaining 200 Scale IV Officers will get nothing.

Like this, the PLI can be calculated for all senior executives. This new PLI scheme for senior executives of Banks by DFS is based entirely on individual performance of officers.

Banks’ board shall frame a transparent, non-discretionary, non-discriminatory policy for identification of officers in different brackets (top 20%, 20%-40%, 40%-60%, 60%-80%) in each scale.

At the beginning of the period for which performance has to be assessed, the employees in each of the eligible hierarchical scales (scale IV to scale VIII) shall be separated into two distinct pools viz., (a) non-revenue generating functions and (b) revenue generating function. Banks shall ensure that of the employees eligible for PLI, at least 50% of them are from revenue generating functions.

Cost threshold for PLI (maximum admissible PLI) shall be calculated in line with the Department of Public Enterprises (DPE) guidelines for performance related pay (PRP) in Public Sector Enterprises (PSEs). 65% of total PLI to be given from 3% of Profit Before Tax (PBT) of previous year and remaining 35% of PLI to be given from 10% of incremental PBT of the previous year over the year before, with overall payout ceiling of 5% of PBT of the previous year. In case of any reduction in the cost threshold for PLI, there will be a proportionate reduction in the corresponding PLI payment of all eligible officers (Scale IV to WTDs).

Any discrepancy impacting profitability, that may figure in RBI audit shall be netted/adjusted in the next year’s PLI ceiling amount of 5% of PBT.

The Government will approve PLI for Whole-Time directors and board of the bank will approve PLI for officers in Scale IV to VIII.

Eligibility of Senior Officers and Executives of Banks to get PLI

• An employee must have served for minimum 6 months in at least one of the eligible scales (IV to VIII) and shall be paid pro-rata for the period served in the eligible scale.
• In case an employee has served in more than one eligible scale (IV to VIII) during the Performance period, the employee shall be eligible for pro-rata pay-out for the period of performance under respective scale(s).
• Executives elevated to the position of WTDs shall be eligible for PLI of their respective previous scale / position, irrespective of the number of months served during the year, on pro-rata basis.
• Employees punished with dismissal/removal/termination from service shall not be eligible for PLI. Employees punished with major penalty will not be eligible for the Rigor period.
• In the cases of resignation or termination, the amount of award not paid out will stand forfeited and lapsed.

How Performance of Bank will be Calculated as per DFS Letter 2024?

Bank performance shall be evaluated based on an Evaluation Matrix comprising of 4 equally weighted Evaluation Parameters – Efficiency (25%), Business (25%), Asset Quality (25%) and Financial Inclusion (incl. EASE reforms) (25%). This means that a Bank will be provided marks on the basis of these 4 parameters. If efficiency is 15%, business is 10%, asset quality is 10% and financial inclusion is 10% then total marks of bank will be 45%. Senior Executives and Whole Time Directors of Bank will be paid PLI as per 40% – 60% Bracket.

The first three parameters are further divided into 12 sub parameters viz., Operating profit to total assets, Return on Risk Weighted Assets (RoRWA), Net Interest Margin (NIM), Cost to Income Ratio (CIR), Current Account and Savings Account Deposit (CASA), Deposit Growth, RAM Advances Growth, Standard Advances Growth, Net NPA to Net Worth, Total SMA to Standard Advances, Recovery and Upgradation ratio and Slippage Ratio thereby capturing important financial indicators.

The performance evaluation on these sub-parameters shall be made using four different Evaluation Methodologies, defined as under:

• M1: M1 means scoring is based on how much a bank improves compared to last year. If a bank performs better than last year, it gets higher marks. But banks that were already performing well earlier may find it harder to improve further. So, to make it fair, performance is divided into different levels (slabs), and marks are given accordingly.
• M2: M2 means the bank’s performance is compared with other scheduled commercial banks (SCBs). If a bank performs better than the average growth of other banks, it gets higher marks. So, marks depend on how well the bank performs compared to others.
• M3: M3 means the bank’s performance is compared with other public sector banks (PSBs). If the bank performs better than other PSU banks, it gets higher marks. This helps measure performance within similar types of banks.
• M4: M4 means marks are given based on whether the bank meets its targets. If the bank achieves its targets, it gets good marks. If it fails to meet targets, marks will be lower.

A committee headed by the Secretary (DFS) shall periodically review and update the Evaluation Matrix, Evaluation Parameters and Evaluation Methodology, as per evolving requirements, priority/thrust areas of the Government, focused priority sector / Government sponsored schemes in the banking sector etc. The committee, headed by the Secretary (DFS), shall comprise of Additional Secretary (DFS), Joint Secretary (Banking) and Chief Executive of IBA, as its members.

How Banks will be provided Marks for payment of PLI?

The Bank will be provided marks as per the parameters below. The marks of each parameter is also given below.

A. Efficiency (25%)

This means that Bank will get 25 marks under this parameter only if ranks well in operating profit, RWA ratio, NIM and Cost to Income Ratio.

• If operating profit is less than or equal to 1.0%, then increase in bps should be 30 to achieve maximum marks.
• If operating profit is more than 1.0% and up to 1.5%, then increase in bps should be 20.
• If operating profit is more than 1.5% and up to 2.0%, then increase in bps should be 10.
• If operating profit is more than 2.0%, then it should be maintained above 2% to achieve maximum marks.

• If RoRWA is less than or equal to 0.25%, then increase in bps should be 15 to achieve maximum marks.
• If RoRWA is more than 0.25% and up to 0.75%, then increase in bps should be 10.
• If RoRWA is more than 0.75% and up to 1.25%, then increase in bps should be 5.
• If RoRWA is more than 1.25%, then it should be maintained above 1.25% to achieve maximum marks.

• If Net Interest Margin is less than or equal to 2.50, then increase in bps should be 30 to achieve maximum marks.
• If Net Interest Margin is more than 2.50 and up to 2.75, then increase in bps should be 20.
• If Net Interest Margin is more than 2.75 and up to 3.00, then increase in bps should be 10.
• If Net Interest Margin is more than 3.00, then it should be maintained above 3% to achieve maximum marks.

• If cost to income ratio is less than or equal to 40%, then it should be maintained below 40% to achieve maximum marks.
• If cost to income ratio is more than 40% and up to 45%, then reduction in bps should be 25 to achieve maximum marks.
• If cost to income ratio is more than 45% and up to 50%, then reduction in bps should be 50.
• If cost to income ratio is more than 50%, then reduction in bps should be 75.

B. Business (25%)

The most important point is that the performance of bank will be compare with all banks in India including private sector banks. If the total growth in deposits is less than 75% of all scheduled commercial banks then the bank will get 0 marks in this parameter. 100% marks will be given only if the growth in total deposits is more than or equal to 100% of all scheduled commercial banks.

• If CASA ratio is less than 40%, then increase in bps should be 50 to achieve maximum marks.
• If CASA ratio is 40% or more and up to 45%, then increase in bps should be 25.
• If CASA ratio is 45% or more and up to 50%, then increase in bps should be 10.
• If CASA ratio is 50% or more, then it should be maintained above 50% to achieve maximum marks.

• If growth of total deposit is less than 75% of All Schedule Commercial Banks, then marks will be 0.
• If growth is 75% or more but less than 90% of All Schedule Commercial Banks, then marks will be 50%.
• If growth is 90% or more but less than 100% of All Schedule Commercial Banks, then marks will be 75%.
• If growth is 100% or more of All Schedule Commercial Banks, then marks will be 100%.

• If growth of RAM advances is less than 75% of All Schedule Commercial Banks, then marks will be 0.
• If growth is 75% or more but less than 90% of All Schedule Commercial Banks, then marks will be 50%.
• If growth is 90% or more but less than 100% of All Schedule Commercial Banks, then marks will be 75%.
• If growth is 100% or more of All Schedule Commercial Banks, then marks will be 100%.

• If growth of standard advances is less than 75% of All Schedule Commercial Banks, then marks will be 0.
• If growth is 75% or more but less than 90% of All Schedule Commercial Banks, then marks will be 50%.
• If growth is 90% or more but less than 100% of All Schedule Commercial Banks, then marks will be 75%.
• If growth is 100% or more of All Schedule Commercial Banks, then marks will be 100%.

C. Asset Quality (25%)

• If Net NPA to Net Worth is less than 25%, then marks will be 25.
• If it is 25% or more but less than 50%, then marks will be 250.
• If it is 50% or more but less than 75%, then marks will be 500.
• If it is 75% or more, then marks will be 750.

• If total SMA to standard advances is less than 75% of All Public Sector Banks, then marks will be 100%.
• If it is 75% or more but less than 90% of All Public Sector Banks, then marks will be 75%.
• If it is 90% or more but less than 100% of All Public Sector Banks, then marks will be 50%.
• If it is 100% or more but less than 125% of All Public Sector Banks, then marks will be 25%.
• If it is 125% or more of All Public Sector Banks, then marks will be 0%.

• If recovery and upgradation ratio is less than 75% of All Public Sector Banks, then marks will be 0%.
• If it is 75% or more but less than 90% of All Public Sector Banks, then marks will be 25%.
• If it is 90% or more but less than 100% of All Public Sector Banks, then marks will be 50%.
• If it is 100% or more but less than 110% of All Public Sector Banks, then marks will be 75%.
• If it is 110% or more of All Public Sector Banks, then marks will be 100%.

• If slippage ratio is less than 75% of All Public Sector Banks, then marks will be 100%.
• If it is 75% or more but less than 90% of All Public Sector Banks, then marks will be 75%.
• If it is 90% or more but less than 100% of All Public Sector Banks, then marks will be 50%.
• If it is 100% or more but less than 110% of All Public Sector Banks, then marks will be 25%.
• If it is 125% or more of All Public Sector Banks, then marks will be 0%.

D. Financial Inclusion (25%)

Following Targets are included in Financial Inclusion. Banks will get marks as per the targets achieved.

Download DFS Circular and Guidelines 2024 PDF for Payment of Performance Linked Incentive (PLI) to Senior Bank Executives (Scale IV and Above including Whole Time Directors)