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New Key Performance Indicators For Public Sector Banks

 

by

Rajesh Goyal 

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On 14th August 2015, GoI has announced Indradhanush - a framework for bring reforms in the pubic sector banks.   One of the interesting and crucial points in this framework is the changes suggested as per key performance indicatros  for public sector banks.    We will discuss below the same.   Let us first under the changes.

 

The present system for the measurement of bank’s performance was a system called Statement of Intent or popularly SoI.  Under SoI, the banks used to come up with their annual target figures based on certain criteria decided by Ministry of Finance. These annual targets  proposed by banks were then discussed between the Ministry and banks and final targets were decided.   The experience indicated that this whole exercise took very long and sometimes the targets for banks used to be finalized only towards the end of the year .   Now the new frame work has made sweeping changes in the same.

 

The new framework of Key Performance Indicators (KPIs) have been divided broadly into two parts :

                        (i) The total marks to be allotted for quantifiable measurable criteria are 80.                       

                        (ii) The remaining 20 marks are reserved for measurement of qualitative criteria which includes strategic initiatives taken to improve asset quality, efforts made to conserve capital, HR initiatives and improvement in external credit rating.  The qualitative performance would be assessed based on a presentation to be made by banks to a committee chaired by Secretary, Department of Financial Services.

 These changes will also impact the Branch heads and other field functionaries including circle / regional / zonal heads of the banks, as now focus will shift from the targets on increase in deposits and credits to other performance parameters.   As bank incumbents have to meet the new set of targets, the lower functionaries across the bank too will be given targets based on what bank now targets to achieve.  

The full details of these are presented below :-

 

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A. QUANTATIVE PARAMETERS:       
  Parameter  Maximum marks  Improvement required to get full marks compared to previous year 
  Efficiency of capital use  25  
Return on Assets  10 20 bps  
       
Return on Equity  5 300 bps  
NIM (Domestic)  5 10 bps  
       
Cost (Overhead) as % of total income*  2.5 250 bps (reduction) 
Cost (Expenses / provision for employees) as % of total income*  2.5 100 bps (reduction) 
 
                 *Total income = Net Interest Income + Total other Income. 
       
       
  Growth/Diversification of business / processes  25  
       
Fee Based Income as % of total income**  7.5 200 bps  
Increase in Retail Credit as % of total credit   7.5 300 bps  
       
Increase in number of Transactions through alternate channels as % total transactions  5 500 bps  
Saving Bank : Improvement in share in total deposit  5 100 bps 
 
                 **Total income = Interest earned + Total other Income  
       
       
  NPA Management  15  
       
Impaired Assets as % of gross advances  10 100 bps (reduction) 
Increase in Cash Recovery as % of opening gross Non-Performing Assets  5 1000 bps  
       
       
  Financial Inclusion   15  
       
Zero Balance in total PMJDY accounts opened by the Banks  2 Less than 20% 
For PMJDY Accounts : % of active Rupay Card vis-ŕ-vis total Rupay Card issued by the Banks  2 Above 10% 
       
% of eligible PMJDY Accounts, as per IBA guidelines, disbursed overdraft facility by the Banks  2 Above 20% 
AADHAR seeding of Bank Accounts  2 Above 75% 
       
Share in enrolment in 3 Social Security Schemes vis-ŕ-vis Bank’s share in Deposits (as compared to total of PSBs)  2 Share in Social Security Schemes equal to or greater than Deposit share. 
Achievement of targets set under Pradhan Mantri Mudra Yojna  2 Above 75% 
       
Growth in Housing Loans under Priority Sector as compared to growth in gross Bank credit   2 Increase of 5% in total loans 
Growth in disbursement of Education Loans (as compared to disbursement in previous financial year)  1 Above 20% 
       
  Total  80  
The improvement achieved below maximum level will be evaluated on proportionate basis of achievement. Marks obtained in fraction will be rounded off to nearest unit. For Financial Inclusion, score below maximum will be evaluated as per specified matrix.  
       
       
B. QUALITATIVE PARAMETERS:       
  Parameter  Maximum marks  Benchmarking  
       
Improvement in external credit rating  5 Improvement in external rating.  
Strategic initiative taken to improve asset quality  5 Innovative initiatives taken by management to improve asset quality.  
       
Efforts made to conserve capital  5 Efforts other than capital infusion.  
HR initiatives (skill development and talent management)  5 Innovative initiatives and rate of attrition.  
       
  Total  20  
       
Evaluation of Qualitative Parameters will be finalised by a Committee chaired by Secretary (FS).   
       
                     GRAND TOTAL   100  
       

The above key indicators to assess the performance of the incumbents of PS banks are quite different from the assessment based on SoI. 

 

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