With the Indian Banks' Association (IBA) – the umbrella body of banks – and the Unified Forum of Bank Unions (UBFU) signing a Memorandum of Agreement to address the three-year litigious problem of pay revision, close to 8.5 lakh bank workers are supposed to earn a 15 percent raise in their salary packages. Bank management and unions have also agreed to implement the performance-linked Incentive PLI program for the first time in public sector banks. The wage increase will take effect as of 1 November 2017. There is also the implementation of a performance-linked reward scheme to motivate workers in a competitive scenario. This would help employees of old generation private banks and some international banks, as 11 state-owned banks, 12 private sector banks and seven foreign banks have signed the agreement. Private new generation banks like HDFC Bank and ICICI Bank are not a part of this.
How much is the Banks going to cost?
The annual pay and bonus rise is accepted at 15 percent of the wage bill as of 31 March 2017. It works on payslip components to Rs 7,898 crore according to the IBA and unions signed MoU. The workers received a similar 15 percent increase in the previous pay settlement, which was for the period November 1, 2012, to October 31, 2017. The United Bank Unions Forum had initially requested a wage hike of 20 percent. The IBA declined to accept this proposal and maintained that it would be at best 10 percent, refusing even the 15 percent that the unions had demanded in the previous round of talks. IBA eventually agreed after lengthy negotiations on the 15 percent hike. Distribution of annual pay increases between staff and officers will be conducted individually and proportionately as of March 31, 2017, based on the breakdown of organization expenses.
Why does it have an effect on banks?
The wage hike has come at a time when most PSU banks in the last few quarters have registered heavy losses. In addition, losses and non-performing assets (NPAs) are expected to increase when the RBI 's announced loan moratorium on tackling the effects of the Covid-19 pandemic is lifted in August. Industry sources, however, said the hike should not be seen in the Covid-19 sense which is expected to hit the income of the banks in the medium term. Wage hike talks have been going on for almost three years. "The hike will not be a burden on banks as predicted, and will make provisions accordingly," a bank source said.
What was implemented as Success Related Incentive?
After lengthy negotiations and consultations, both sides decided to implement the performance-linked Incentive (PLI) in public sector banks which will be focused on the individual bank's operating income / net profit. For private and international banks, this would be optional. "The PLI is available quarterly to all workers above and above the usual wages to be charged. Based on the bank 's annual results, the PLI formula determines the amount payable to employees, "the MoU notes.
According to the formula, if the operating income growth is less than 5 percent year-on-year, there is no opportunity. If the Y-o-Y growth is between 5-10 percent, the option will be granted to pay five days' salary. If the growth is between 10-15 percent, wages of 10 days will be the reward and in the case of 15 percent-plus growth, wages of 15 days will be granted.
"There is intense competition among different categories of banks in today's banking scenario – public sector, private sector, and foreign banks. The idea of Performance Linked Pay is felt to be implemented in order to instill a sense of competition and also to reward the results, "the MoU says. Although PLI has been implemented to empower workers, in reality, it may be hard as banks are expected to report losses in forthcoming quarters, sources in the banking industry said. Also you can use this salary calculator for verify your salary.
How are Stock Options for Employees?
In the past, there was a plan to offer stock options to the senior management of state-owned banks, connected to a bank that achieved operational and financial milestones. This was not included in the pay talks, however, and a PLI system is being implemented. Management and unions have decided to increase the contribution of the banks to the NPS (National Pension Scheme) fund to 14 percent instead of the existing 10 percent limit from the prospective date of the settlement signing.
The wage hike has come at a time when most PSU banks in the last few quarters have registered heavy losses. In addition, losses and non-performing assets (NPAs) are expected to increase when the RBI 's announced loan moratorium on tackling the effects of the Covid-19 pandemic is lifted in August. Industry sources, however, said the hike should not be seen in the Covid-19 sense which is expected to hit the income of the banks in the medium term. Wage hike talks have been going on for almost three years. "The hike will not be a burden on banks as predicted, and will make provisions accordingly," a bank source said.
