Govt may again offer PSU Bank Employees to purchase stocks of their Banks

The government has restarted discussions with public sector banks (PSBs) regarding the possibility of offering stock options to eligible employees. This move has rekindled hope for the long-standing demand of the lenders. The proposal to introduce employee stock ownership plans (ESOPs) has been on hold for some time, but it may gain momentum after the Lok Sabha polls, according to sources familiar with the matter.

Talks with the Government and Consultancy Firm Involvement

Bank executives have confirmed that talks with the government took place last month, focusing on issues related to PSBs, including ESOPs. One executive mentioned that the lenders will soon present a framework to the government. Additionally, the bankers have appointed consultancy firm Deloitte to provide suggestions on the ESOP matter. The government has stated that discussions are still in the preliminary stage, and any decision on the proposal will be made after the polls.

Framework Consideration and Benefits of Employee ESOPs

The proposed framework will take into account various factors that impact state-run banks, with employee ESOPs being a longstanding demand of PSBs. The lenders believe that offering ESOPs will help them attract and retain talent, especially in the face of intense competition from private lenders. Experts suggest that stock options have a proven track record in the private economy and could offer similar benefits to the PSU ecosystem.

Previous Discussions and Recommendations

Discussions on the ESOP issue were held by the government in 2020, but the proposal did not gain much traction. In the same year, the Economic Survey advocated for providing ESOPs to PSB employees, highlighting how it would enable them to become owners of the banks and incentivize them to embrace risk-taking and innovation. The government’s Indradhanush framework for transforming PSBs in 2015 also recommended ESOPs for top management.

Previous Attempts and Lack of Interest

Under the Employee Share Purchase Scheme, the previous UPA government allowed PSBs to offer shares to employees at a discounted price in 2013. However, in recent years, most lenders have offered this option to their employees, with limited interest from them.