THE ANNOUNCEMENT THAT SOUNDED TOO GOOD

The Department of Financial Services (DFS) recently unveiled a Composite Salary Account Package for Central Government employees, directing all Public Sector Banks (PSBs) to implement a uniform, benefit-loaded salary account.

On the surface, the scheme appears attractive—zero-balance accounts, high insurance cover, loan concessions, fee waivers and premium card benefits under one umbrella. But behind the glossy announcement lies a serious issue that cannot be ignored.

But policies must be judged not by headlines—but by who pays the bill.

“There is no free banking—only hidden costs.”

AUTONOMY—QUIETLY TAKEN AWAY

Banking is not an administrative extension of the government. It is a regulated commercial activity governed by:

• Board-approved policies

• Risk assessment frameworks

• Profitability and capital considerations
  
  

By mandating a centrally designed product, DFS has crossed from policy oversight into operational control. Banking is a commercial activity, not a charity. Product design, pricing and risk management are the responsibility of a bank’s Board and management. By centrally dictating a uniform product, DFS has effectively diluted the autonomy of PSBs and reduced them to mere implementers of policy decisions.

This raises an uncomfortable question:
What role do PSB Boards play if product design is decided elsewhere?

“PSBs are being converted from decision-makers into implementers.”

THE COST THAT NEVER APPEARED IN THE PRESS NOTE

Every component of the composite package carries a financial burden:

• Insurance premiums

• Service costs

• Operational overheads

• Opportunity loss from waived fees
  
  

Yet the policy offers no clarity on:

• Government reimbursement

• Budgetary support

• Risk-sharing arrangements

The costs are simply absorbed—silently—by PSBs.

“Welfare without funding is not welfare—it is cost transfer.”

BALANCE SHEETS UNDER PRESSURE

PSBs are already navigating:

• Capital adequacy requirements

• Profitability pressures

• Recovery from past NPAs
  
  

A mandatory, high-cost salary account:

• Erodes non-interest income

• Raises cost-to-income ratios

• Limits pricing flexibility
  
  

At a time when PSBs are urged to improve performance metrics, this policy pushes them backwards. High-value accident insurance, life cover, health insurance, locker rent waivers, loan concessions and card benefits do not come free. With no clarity on government subsidy or reimbursement, the entire financial burden is being quietly shifted onto PSBs—impacting their profitability and already-stressed balance sheets.

“You cannot demand profitability while mandating losses.”

ONE SIZE FITS NONE

India’s PSBs are not identical.
Every PSB has a different financial capacity, regional profile and risk appetite. Forcing a common package ignores ground realities and increases risk concentration and operational strain.

Some are regionally concentrated. Some are mid-sized. Some are still stabilizing financially.

A uniform product:

• Ignores regional realities

• Forces weaker banks into higher risk exposure

• Creates operational strain without safeguards

“Uniformity is not reform when realities are unequal.”

THE UNEVEN PLAYING FIELD

Private and foreign banks face no such mandate.

They decide:

• Whether a product is viable

• How benefits are priced

• When concessions are withdrawn
  
  

PSBs, meanwhile, are compelled to comply—while competing in the same market. Private and foreign banks face no such directives. Once again, PSBs are expected to shoulder social objectives while competing in a market where others operate purely on commercial terms.

“Competition is fair only when rules apply equally.”

THE PRECEDENT THAT SHOULD WORRY ALL BANKERS

This is not just about salary accounts.

It is about the principle of interference.

If salary accounts can be centrally designed today, what stops tomorrow’s interference in loans, deposits or pricing? This approach contradicts repeated assurances of greater autonomy and professional governance for PSBs. That would reverse decades of reform aimed at professionalizing PSBs.

“Policy creep is the real risk.”

THE REAL QUESTION

Employee welfare matters,  But weak banks cannot protect anyone’s future. Employee welfare is important—but welfare cannot be built on unfunded mandates. Policies must respect banking fundamentals and institutional independence.

PSBs must serve the nation—but they must also be allowed to survive, compete and grow. 

“Autonomy is not a privilege. It is a prerequisite.”