It’s a different Diwali for chief executive officers (CEOs) and their deputies at public sector banks. Most of them have got “hefty" bonuses—in the case of CEOs, it is as much as Rs8 lakh and for their deputies, Rs6 lakh. This is nowhere close to what their counterparts in the private sector earn, nonetheless public sector bankers are happy as the amount is more than their annual salary.

Their performance in fiscal 2007 is well known, but what is not known is how close they came to the promise they had made to the Union government, their majority owner, in the form of “statement of intent" on annual goals. It’s a well guarded secret of the ministry of finance.

The 28 state-run banks have been divided into four categories—large banks with total business (deposits plus advances) worth Rs1.2 trillion and above; mid-sized banks with total business of Rs60,000 crore to Rs1.2 trillion; small banks with total business less than Rs60,000 crore and the seven associate banks of State Bank of India.

Except for the Central Bank of India and Punjab National Bank (PNB), all other large banks exceeded their net profit targets last year. Central Bank, which recently entered the capital market, made a net profit of Rs498 crore against a target of Rs653 crore, while PNB’s net profit was Rs1,540 crore against a target of Rs1,700 crore.

Bank of India and Bank of Baroda exceeded their net profit targets hugely (Rs1,123 crore vs 802 crore for Bank of India, and Rs1,026 crore vs Rs890 crore for Bank of Baroda); Canara Bank and Syndicate Bank did better than what they had promised; and SBI and Union Bank of India just about managed to keep their promise. SBI posted a net profit of Rs4,541 against Rs4,500 and Union Bank Rs845 against Rs825.

The only mid-sized player that failed to deliver was Oriental Bank of Commerce: its net profit was Rs827 crore against a target of Rs885 crore. Every other mid-sized bank kept its promise with Indian Overseas Bank in first slot with a net profit of Rs1,008 crore against a promise of Rs851 crore.

Similarly, among the small banks, only Bank of Maharashtra fell short; it posted a profit of Rs271 crore against the target of Rs310 crore.

SBI associate banks were the worst performers. State Bank of Bikaner and Jaipur, and State Bank of Hyderabad surpassed their profit targets, State Bank of Travancore just managed to meet it, but State Bank of Mysore and State Bank of Patiala missed by a wide margin and State Bank of Indore and Saurashtra missed them narrowly.

State-run banks’ performance in terms of deposit mobilization and asset creation—two important business parameters—was also outstanding. Except for Union Bank of India, Uco Bank, and SBI and its two associate banks, all banks exceeded their deposit mobilization targets, some of them by yards. For instance, Syndicate Bank’s deposit grew by close to 49% against a target of 20.08%. In the case of IDBI Bank, deposits grew by 66.75% against a commitment of 34.61%. Indian Overseas Bank saw its deposit growing 36% against a 14% target and both Bank of Baroda and Vijaya Bank’s deposit kitty rose by more than 33% and 36%, respectively, against a target of slightly more than 20%.

Similarly, only a few banks failed to achieve the target they had set for growing loan advances. SBI is one of them, as is Union Bank and two SBI associates. Bangalore-based Vijaya Bank’s loan advances grew more than 44% against a target of 28.90%. Syndicate Bank saw more than 42% advance growth though it committed 29.33%. Similarly, Kolkata-based United Bank of India’s advances grew 42% against 27.20%.

One parameter where most of the banks failed to keep their promise was in paring their net non-performing assets. Except for PNB, Allahabad Bank and Oriental Bank of Commerce, other banks could not keep their promise in containing their stressed assets. Return on assets was another area where they fared poorly.

The bonus was paid on the basis of targets set in the “annual statement of intent" drawn up in the beginning of the year. Their statement listed 16 performance parameters that included deposits, advances, net profit, return on assets, return on net worth, earnings per share, net interest margin, capital adequacy ratio, cost-income ratio, non-performing assets and so on. CEOs who were able to achieve 80% of the targets were eligible to get Rs8 lakh performance-linked bonus, while Rs6 lakh went to those who had been able to achieve about 60% of the targets.

Overall, Indian Bank, Indian Overseas Bank, Bank of India, Corporation Bank and Bank of Baroda achieved most of the business targets they set for themselves at the beginning of the year. So, one can assume that the CEOs of these banks got the maximum bonus.

Nobody is grudging their hard-earned bonuses and they, in fact, should get more. But it’s no fun setting modest targets that can be achieved and easily exceeded. Let them set for themselves stiffer targets.

Postscript: Actually, the bonus cheques were credited to the accounts of CEOs and their deputies quite sometime back. But most of them are planning to spend the money now as they would like to believe it’s a Diwali gift from the government. The ministry put in place the performance-linked bonus system early this year, but it takes effect from fiscal 2006. So, those who have been at the helm for last two years, have got two cheques! Not a bad Diwali for public sector bank CEOs.

Tamal Bandyopadhyay keeps a close eye on all things banking from his perch as the Mumbai Bureau Chief of Mint. Please email comments to