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Government aims the rigorous assessment system in money box


  • The government has proposed a stringent appraisal system at public sector banks, aiming to infuse efficiency and transparency in the state-owned banking entities after it opened the door to private sector candidates for key posts.
  • The proposal is part of an overhaul that the government is seeking in the performance framework followed by the banks.


  • The aim is to evolve an appraisal system which covers all efficiency parameters and not just credit growth and reduction in bad loans.
  • The proposed criteria to evaluate performance could, however, have adverse implications for incentives drawn by top executives in the public sector banks.
  • At present, the points-based evaluation of public sector banks is done on parameters such as business growth, current and saving account deposits, priority sector lending, advances to micro, small and medium enterprises, and financial inclusion, among others.

Government and RBI

  • Bank chiefs are further evaluated on strategic planning, innovation and HR development. Both managing directors and CEOs, and executive directors stand to lose their performance incentive if they score less than 80% in the annual appraisal.
  • The evaluation of performance is done by a subcommittee of the board compromising of the nominee of the government and the Reserve Bank of India, and two other directors.
  • The government has initiated a slew of measures including hiring candidates from private sector to clean up state-run banks ever since, in 2014, the Syndicate Bank chairman and managing director SK Jain was arrested by the Central Bureau of Investigation for allegedly accepting bribes of Rs 50 lakh to enhance the credit limit of some companies.
  • Wide-ranging changes are expected in the statement of intent (SOI) on annual goals that public sector banks have to sign with the government.
  • The performance of bank MD & CEO and executive directors will also be appraised based on these changes to SOI.
  • These changes could include higher weightage to return on equity (RoE) and return on assets (RoA), cost to income ratio and profit per employee, among other parameters.
  • The government has already linked capital infusion in public sector banks with efficiency as part of its strategy to improve performance of the lenders that are laden with nonperforming assets.


  • Poor performers may not only suffer on account of capital allocation to the bank but also see a further hit in the incentives.
  • As a result, the bankers will have to go the extra mile to improve the performance of the banks.
  • The IBA has also written to the finance ministry, saying that the appraisal system should be broadbased to incentivise bankers.
  • MP Shorawala, an independent director with Central Bank of India, said the government should develop a bank specific appraisal system taking into account its geographical and business spread.

Source:The Economic Times

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