NEW DELHI: The government has put in place a mechanism for statement of intent (SoI) signed with public sector banks that sets out new targets for three years besides linking future capital infusion to meeting these yardsticks. Sources said that banks are in the process of getting their boards to agree to the targets set by their managements and the finance ministry. In October, the revised SoIs with new parameters such as employee productivity were finalized. SoIs were started more than five-years ago with chiefs of banks that meet the targets entitled to a year-end bonus. Although the practice did force banks to plan, annual targets were seen to be short-term planning. This prompted the finance ministry to review the system and put in place a mechanism spread over three years. "At least, medium term goals are required. Short-term issues such as strategy for particular sectors would be dealt with separately on a quarterly basis," said a government official. The move to tweak the parameters was also prompted by the change in the environment. For instance, the clause relating to productivity was the result of the enhanced use of technology and the sharp increase in wage bill in recent years. In fact, even the RBI has expressed concern over the issue. "There used to be a gap between new generation banks and public sector banks. That gap has disappeared. Today, salary per employee in a public sector bank is not that different from a private bank but productivity level is very different. So, that means that the governance standard is deteriorating. If public sector does not follow governance standards, the burden is borne more by the society. There is a moral hazard since the state has to bail them out in period of crisis," RBI deputy governor KC Chakrabarty told ToI. As a result, at least three staff-related criteria have been bundled in. These include net profit per employee, employees' cost-to-income ratio and staff ratio at branches.
TOI
