FinMin has agreed in-principle to allow public sector banks to offer stock options to their employees from next fiscal.
This is a move aimed at retaining experienced hands with better incentives.
Employee Stock Option plans (ESOPs) could be given by those banks which have not only earned substantial profit but also made remarkable improvement in managing NPAs.
It will help motivate employees to work towards strengthening the financial status of their banks so that their share value rises.
The percentage of profit can be earmarked for ESOPs is to be worked out.
This is based on the suggestion of Banks Board Bureau (BBB). One of the proposals is to issue shares equivalent to a certain percentage of banks’ net profit to employees which is being examined.
For large banks, the ESOPs could be as much as 5 per cent of profit after tax while for the smaller ones, it could be about 3 per cent but no decision has been taken yet.
Apart from ESOPs, bonuses and other performance-linked packages are also being discussed as suggested by BBB.
ESOPs are common in the private sector, where companies offer stocks to reward and retain key and top-performing employees.
Since the employees stand to benefit from any appreciation in stock price, ESOPs also help in aligning the interests of the employees with those of shareholders.
It can be monetary or non-monetary benefits to make it more attractive for professionals to enter public sector banking space.
PSU Banks in India- Public Sector Banks (PSBs) are banks where a majority stake (i.e. more than 50%) is held by a government.
- The shares of these banks are listed on stock exchanges.
- There are a total of 27 PSBs in India [21 Nationalized banks and 6 State bank group (SBI + 5 associates) ].
- In 2011, IDBI bank and in 2014 Bharatiya Mahila Bank were nationalized with a minimum capital of INR 500 crore.
