SBI: Analysts cheer move to raise staff incentive

According to media reports, State Bank of India (SBI) is looking to raise performance-linked incentives paid to its employees from one per cent of net profit currently to about three per cent and might also give stock options to employees above the rank of assistant/deputy general manager.

The bank, reportedly, is awaiting the government’s nod to carry out this move. The move has been cheered by most analysts as they believe it would aid the bank in retaining as well as attracting superior talent going forward Stock Market Trading Tips

Additionally, given the increased pressure on profitability due to rising asset quality pressures, the three per cent number is small and might not impact financials significantly.

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Vaibhav Agrawal, VP Research, Banking, Angel Broking, says, “If implemented, this will be   a step in the right direction. Three per cent is not a very big amount. In case of most PSU banks, staff cost is one per cent plus of total balance sheet even though the return on assets is miniscule Himanshu Tiwari Astrologer

This step could lead to higher profits and hence we believe shareholders would be more than happy with the move. However, one has to wait and watch how it is implemented.  Salary base is also important as the incentive amount should be big enough for motivating people to do better.”

Analysts, however, believe it will be difficult for SBI to get permission to give employee stock options (ESOPs). Suresh Ganapathy, Financials analyst, Macquarie Securities says, if SBI gives ESOPs,  employees of NTPC, BHEL and others  may also ask for the same. Thus the bank may find it difficult to get permission for this Indian stock market astrology prediction

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Average employee cost of top five public sector banks in the past three years ending FY15 is 95-175 per cent of their average net profit. This number has increased in recent years due to falling net profit which has been impacted by rising provisions towards bad and doubtful debts.

In comparison, this metric ranges between 43 per cent and 77 per cent for the top five private banks. One reason for this is that these banks’ profitability has grown at much faster pace than that of their PSU peers in recent times. Another is that ESOPs form a significant part of their employee payments. In HDFC Bank for instance employees have benefitted significantly from their ESOPs given decent stock returns. Also these ESOPs are given till mid-management employee base. This strategy successfully aligns employee incentives with profits Sensex Astrology

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Some analysts believe slowing credit offtake is a key hindrance for such incentives to work. Cyton Fernandes, banking analyst, Emkay Global, says the success is contingent on higher credit growth. While pointing out that he would turn more positive on SBI after this move, Fernandes said the current chairman had just one more year left and one does not know what the her successor's view would be.

While other PSU banks may want to pursue a similar strategy, analysts believe they might not find the going as easy. That's because many of these banks do not have a strong person in charge of their management and two, their profitability might not be as strong as SBI Share Market Astrology