Rift over first ESOP issuance by UBI, Allahabad Bank

With two public sector banks (PSBs) — United Bank of India (UBI) and Allahabad Bank — looking to offer employee stock ownership plan (ESOP) to their staff, a rift among employees and officers associations over the exercise has already surfaced. This is for the first time that PSBs are issuing ESOPs to their employees.

Recently, UBI’s board of directors had approved a proposal to issue up to 50 million equity shares in one or more tranches by way of ESOP. Allahabad Bank has also got its board approval for issuing 50 million equity shares by way of ESOPs. While, Allahabad Bank is looking to raise about Rs 3-3.5 billion through the issue, UBI is looking to raise about Rs 850 million. Both the banks are likely to convene general meetings soon, to get shareholders’ approval.
 

According to Pawan Kumar Bajaj, managing director, UBI, the ESOP issuance is likely to dilute about 1.5 per cent of the government’s stake in the bank. 

PSBs are already scrambling for raising funds amid rising non-performing assets and low credit offtake. Thus, these two banks would now have to depend upon their officers’ associations, which comprise about 40-45 per cent of the total workforce in the two banks for the issue, as employees are unlikely to subscribe to it. However, the officers’ association has made it clear that ESOPs should not be linked with performance.

“We are not opposed to ESOPs, provided they are not linked to performance,” said D Thomas Franco, general secretary, All India Bank Officers’ Confederation, the principal association for officers in both Allahabad and UBI. “We neither see any commercial value nor it fits our ideology to subscribe to shares of PSBs. We are not in favour of any kind of private ownership of the banks. Also, as employees, we don’t think giving ESOPs will anyway mean employees will be more motivated,” said C H Venkatachalam, general secretary, All India Bank Employees Association, the main workmen’s association in PSBs. Other PSBs could also follow suit, and offer ESOPs based on the success of these two issues.

Two years ago, SBI had mooted the idea of issuing ESOPs to its employees but the government didn’t approve of it, said an official. “We had sent a proposal for issuing ESOPs to employees to the government about two years back but since there was no response from the government, the matter was never further pursued,” the official said.

However, in March 2017, the finance ministry had agreed in-principle to allow PSBs to offer stock options to their employees from the next financial year.
 

One of the motives behind the issuance of ESOPs has been to incentivise employees with a better pay package. Vinod Rai, chief, Banks Board Bureau, had said that the compensation packages of officials in the state-run banks may be overhauled, and that they might be provided with more flexible variable components, including bonuses, ESOPs and performance-linked packages.