ESOP & ESPP- THE WAY TO EMPOWER THE BANKERS

ESOP & ESPP- THE WAY TO EMPOWER THE BANKERS:

Motivate in bad days and rewards in good days:

ESOP:  EMPLOYEE STOCK OWNERSHIP PLAN:

(From Investopedia)

An employee stock ownership plan is a qualified defined- contribution employee benefit (ERISA) plan designed to invest primarily in the stock of the sponsoring company, the selling shareholder and participants receive various benefits. ESOPs are often used as corporate finance strategy and also used to align the interests of company’s employees with those of the company’s shareholder.

This is basically means that the employee has the option to purchase stock of the company at a future date at a pre determined price.

ESPP: EMPLOYEES STOCK PURCHASE PLAN:

Company run program in which participating employees can purchase company shares at the discounted price. Employees may contribute to the plan through payroll deductions which build up between the officering date and purchase date. At the purchase date the company uses the accumulate funds to purchase share in the company on behalf of the participating company.

What is the different B/W ESPP and SIP:

SIP invested in the verity of shares. The risk involves depending on the scheme selection.

In ESPP all fund are used for purchase the mother company shares which involves HIGH RISk. 

 Why ESOP & ESPP:

There is lot to tell but I am going for important.

·         ESOP & ESPP is a great way to enhance the company’s ability to recruit and retain top talent.

·         Effective and ongoing employees to think and act like owners & contributers.

·         Profitability and a history of peaceful labor relation for sustainable development.

·         Knowledge of the employees related to the company is significant.

·         Employee will not give up the company.

·         The image of the company remains maintained.

·         Trust between employees and the company is health.

Ex: king Authur Flour – who converted to an ESOP in 1996, spend lot of time and money teaching employees to be financially literate.he believes that when one combine employee ownership with financial understanding employees take steps to make a better and more sustainable company. (ref New York Times, Jun 25,2016)

Why it is important to bankers particularly:

I just start with the experts is PSU bank share will multi bigger in coming days:

The views are below:

·         Most of the PSB stocks are trading well below their book values, which is certainly not a good thing for investors who have invested in them. A PSB stock trading below its book value means if the bank is put up for sale, it would not fetch the same value as shown on its books.

·         But PSU banks are an integral part of our economy and it would be hard to write off all from a portfolio, experts say. When the economy bounces back, PSU banks will have to play a special role. The Reserve Bank of India (RBI) is doing everything to put these banks on track.

·         Almost 70 per cent of the banking system is represented by the public sector banks and any big project of the size has to be financed by public sector banking consortia. There is no way India can really grow if the public sector banks go down the tube," U R Bhat, MD, Dalton Capital Advisors, said in an interview with ET Now.

·         In December, the Reserve Bank of India dropped a list of 150 truant borrowers and asked banks to classify their loans as non-performing accounts even if the borrowers were paying on time, said an ET report.

·         In December, the Reserve Bank of India dropped a list of 150 truant borrowers and asked banks to classify their loans as non-performing accounts even if the borrowers were paying on time, said an ET report.

·         The stress recognition following the quality reviews would further threaten near-term existence of the PSBs due to collateral damage through NIM contraction, higher credit cost and shrinkage of core capital.

·         "RBI's proactive measure to make it binding for banks to recognise stress through asset quality reviews is indeed laudable. Expectedly, the bulk of its impact would be on the public banks that are stuck in a cesspool of stressed assets," said Amar Ambani, Head of Research, IIFL.

·         "There's every chance that stocks of some of these stressed PSU banks may get cheaper in the medium term. From a long-term perspective, many stocks across sectors look attractive but being investors, with limited capital and a smaller time horizon compared with the company promoters, we need to consider the opportunity cost of the investment,"

·         "The PSU banking space, unfortunately, is being at the receiving end of it even though valuations do look attractive for most of the PSU banks," said Nitasha Shankar, HoR, Yes Securities.

·         "If I take a three-year view, I am actually quite bullish on PSU banks because I think we are past the maximum point of concern with regard to NPLs and from here on I expect them to do quite well actually," S Naganath, DSP BlackRock Investment, said in an interview with ET Now.

The expert’s views are in the general just think ….

·         Many mutual fund portfolios occupies of HDFC and some private sector banks share with large percentage why not PSU banks.

·         Many AMCs having good trust with the private sector banks why not PSUs.

·         The investment in the capital market with PSU banks is just for short term purpose not for a long term, which shows that the investors mindset with the PSUs banks.

·         PSU banks opened 11.52, 9.21 Cr accounts in Rural & Urban and distributing nearly 16.44 Cr Rupay cards, seeded 11.85 Cr Aadhaar cards. With Compare private banks has 0.52 cr & 0.35 Cr in rural and urban respectively. Distributing 0.81 Cr Rupay card, seeded only 0.37 Cr Aadhaar.

·         Balance of such accounts is around 55667.96 CR with 24.17 Cr accounts are in Zero balance. In private swector banks it is 2663.59 Cr with 34.48 Cr accounts are in zero balance. PMJDY accounts as on 21/12/2016.

·         According to data released by the RBI, Rs14.2 trillion worth currency notes inf Rs 500 and Rs1,000 denominations were in circulation as on 31 March.“Their (state-run banks’) sensitivity to falling bond yields is higher,” said Aggarwal, pointing out that roughly, for every 50 basis-point decline in the 10-year bond yields, their average operating profit will increase by around 7%.

·         “Private Banks are not as sensitive to this, as their fee incomes and margins are higher,” said Aggarwal.

·         Foreign institutional investors (FIIs) have sold a net of $2.8 billion in equities since 8 November, pushing many bank shares lower. “Most selling is happening by FIIs, and the holding of FIIs in private banks, is much higher than that in PSU Banks,” said an analyst with Reliance Securities, explaining why shares of state-owned banks have been relatively resilient.

Many villages are depending on PSU banks only .the large quantity deposits received from the people is remains stable at least 40% end of the MAR 2017.

Just think……… if - digitalization success.

Every bank management wants to each and every employee contributions for their development. ESOP & ESPP will increase trust among employees. This will inject motivation among them.

The working hours of the bank employees and workloads are now gradually increased.

It creates the pressurized environment. Past two years ware very crucial, that makes bankers as restless, many bankers loss their leaves, time (spend with their family) which slightly increased the painful morning to every bankers.

Same salary for extra time with painful environment seeks the young minds to get out from work.

Many young bloods are recruited from 2012 onwards by banks. Many PSU banks are now or going to YOUNG BANKS (average age). Than

The salary and the other benefits may helpful for employees but main factor is inflation.

 Whether the salary and pension is enough for the employee??

What about short term emergency needs?

If all limits (loan quantum) utilized by the employee then who will help him?

NPS and pension will available only after retirement, what about certain high medical expenses? 

If lot of young minds dissatisfy with their pressurized environments what will be the backup plan?

How to change the environment of the PSU banks as more friendly?

It is not only the reasons for ESOP & ESPP for bankers but more than that.

How to identify the mistakes?

Same work in same way for long days without any change.

- Robin Sharma