Performance Linked Incentive (PLI) – Boon or Bane for the Banking Sector

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Salary is paid to employees for their work. Work is the performance. If they are working more, they should be paid better salary, which will add to their retirement benefits, but the Finance Ministry is forcing performance-linked incentives to a selected few and not to all, though everybody works.

In our country, corporates are getting Production Linked Incentive from the Government if they increase their production, increase exports or reduce imports, which is under criticism because it is often going to the favourites of the ruling party. This is different from the PLI in banks.

Performance Linked Incentive is paid normally if a company is performing exceptionally well. Like a diamond merchant in Gujarat who distributes profits in the form of cars, houses, etc., to his employees. Mr. Suresh Sampantham of Kissflow, Chennai, an IT company, was in the news when he gave cars to his employees when the company did well. Some IT companies have the practice of sharing a certain percentage of their profits with their employees.

In corporates which depend on sales, sales commissions are given as incentives.

Some companies provide performance bonuses based on the profitability of the company and also the staff’s annual performance.

In the software industry, teams are given incentives if they develop software before a target date.

In the Banking Industry in India, Performance Linked Incentive was introduced under a Bipartite settlement signed between the Indian Banks Association and Unions/Associations in November 2020. This was a justified scheme covering all employees of the Bank if the Bank improved its profit based on a year-to-year basis. This motivated the employees to perform and increase the profit, though the profit also depended on the write-off of loans, for which employees are not responsible, as huge write-offs are decided by the Boards of the Bank. The slab fixed was that if the operating profit grew less than 5%, no PLI was to be paid. If the operating profit grew by 5% to 10%, then 5 days’ salary was paid as incentive. If the operating profit grew above 10% to 15%, then 10 days’ salary was paid. If the operating profit improved above 15%, then 15 days’ salary was paid as incentive. Everybody in the particular bank got the incentive. It was not a uniform amount; only the percentage was uniform. Higher the grade, higher is the pay and higher is the incentive. This was attractive, and every employee welcomed it, from messenger to Deputy Managing Director/Executive Director. Everything went on well. The profits of Banks increased year by year.

Then came in the Department of Financial Services. On 19th Nov 2024, they issued a letter to the Banks saying, “In supersession of the letter of 2015, the Central Govt. has revised the scheme for performance-linked incentive to whole-time Directors and Senior Executives of the Banks.” They had no authority to issue a letter superseding the Bipartite settlement, which was notified in the Gazette after many formal approvals.

It gave the following rates for PLI.

• ED, MDs of Nationalised Banks and DMDs, MDs and Chairmen, SBI – 100%
• Scale VII to Scale VIII – 90%
• Scale V to Scale VI – 80%
• Scale IV – 70%

The Banks’ performance parameters were changed from operating profit to 4 equally weighted Evaluation Parameters. They were, Efficiency – 25%, Business – 25%, Asset Quality – 25% and Financial Inclusion – 25%.

The officers were to be bracketed as top 20%, 20–40%, 40–60%, 60–80% in each scale.

20% will not be eligible for PLI, and they may be removed from service for poor performance.

The decision was put on hold when the United Forum of Bank Unions (UFBU) gave a strike call and the Central Labour Commissioner intervened through a reconciliation proceeding. But the DFS has forced banks to pay this PLI for the year 2024-25, when the issue was under conciliation between the IBA & UFBU.

In the conciliation held on 20.08.2026, it was decided to discuss further. Unfortunately, the DFS instructed Banks to immediately credit the PLI for senior officers and executives, ignoring the conciliation proceedings and with utter disregard to the Central Labour Commissioner.

This is a violation of the laws of the country. Is the Finance Ministry above the law? Above the Constitution, which prevents discrimination?

Let us analyse the scheme.

5% of the people alone will be rewarded with an amount more than the amount paid to 95% of the workforce.

The majority get 15 days’ salary, whereas a few people at the top get 365 or one year’s salary as incentive. Is it not discrimination? Is it not distorting the salary structure agreed through time-tested Bipartite settlements, which are approved by the Ministry and Gazette notification issued?

Banking is entirely a TEAM Work. Everyone in a branch or office has to work as a team and play their respective role.

Let’s recall the recent football World Cup. Mbappé is an excellent player, but he alone could not win the World Cup for France. Lionel Messi is an excellent player, but he could not win the Cup for Brazil because the whole team’s performance was inadequate.

In the Bank, the Branch Manager to the Messengers are ambassadors of the Bank. They work in tandem. Without the TEAM, the customer service and the business will be affected.

The Finance Minister, the foreign consultancy groups who advise the Govt. and the officials in the Ministry have never worked in a Bank branch. They have not understood TEAM work, or they believe in the British idea of divide and rule.

All over the world, companies have moved over from this kind of personal incentives and performance appraisal system for individuals and incentivising team work.

So this kind of Performance Linked Incentive will become a bane in the Banking Industry. It’s high time to revert back to the agreed incentive system, which had been working well.

Is this not the plan to create an alibi for privatisation? The cycle of reducing NPA through write-off and giving fresh loans to clean up the balance sheet has taken the full round. Now NPA is going to increase. There will be hue and cry. The so-called better performers may switch over to private banks or firms. The Public banks will be accused as non-performers. All kinds of incentives will stop. The Government will say, ‘only privatisation can solve the problem’. Remember the statement of the Prime Minister, ‘Public Sector was born to die’. They are not dying, so make them sick and privatise.

Another irony is that the maximum PLI of additional PLI is given to the full-time directors of the banks who take the decision to lend to large corporate loans and also approve the write-off proposals. So they will be rewarded by the Corporates by inducting them into their boards.

It is shocking that the Finance Minister called the BJP-supporting miniscule unions and announced that PLI is put on hold for 2025-26 instead of calling the majority unions and associations having more than 8 lakh employees. She should honour the agreement, which provides for 5 to 15 days’ salary to all profit-making banks.

Hence, after the failure of reconciliation efforts by CLC due to the adamant attitude of the Finance Minister, the Bank employees, including officers, are going to strike work on September 11, followed by a 3-day strike from 28th–30th September and indefinite strike from October 2026. They are also demanding 5 day week which was agreed more than 2 years ago. Time for the Finance Minister and Prime Minister to wake up and settle the issues which are just and right.