The managers are certain that once mergers take place, VRS cannot be far behind, "If everything goes smoothly, you will see at least three mergers by December," a senior economist in a bank in Bangalore told Business Standard.

The compulsion to be better prepared against risks, technology making some jobs redundant, outsourcing of functions like marketing retail products and a mergers-and-acquisitions-friendly government could lead to at least another round of voluntary retirement schemes in public sector banks in the next two years, say senior managers in the industry.

The biggest driver for the VRS, however, will be "mindset" as one general manager put it. Public sector banks will have to go after customers to survive under increasing competition.

For this they have to change the way they do business. Those who can make the transformation will have to undergo extensive training.

"But in these banks, it is difficult to get people to accept new ways of doing business," he explained. So those unable to learn new tricks will have to leave.

The economist said, the need to adhere to the stricter prudential norms as outlined by the Basel II guidelines, for which the banks have till March 2007 to prepare themselves, "will also make the role of specialists important."

And, such specialists wouldn't be available at current, fixed salaries. "You will have to give them what the market indicates."

The specialists will play a central role in transforming public sector banks, using technology to make day-to-day operations efficient and using such tools as "business intelligence" software programmes to better understand customers.

"It won't be long before you see us also developing products specific to say a geographic region, or customer segment," he said.

Under pressure to grow their core business of lending to people - individual and corporate - rather than buy and sell government bonds, to improve profitability, public sector banks were seeking to tap customer segments they had ignored.

The increase in housing loans in the last two years, and new products for retail traders and salaried customers was indicative of this. They have also started cross selling products like insurance.

The pressure on staff will come from different quarters: If there are mergers, surely we will close down some branches."

"So, banks will have to evaluate surplus staff and redeploy some to focus on marketing, for unless we offer real value-added services, roping in more customers will be difficult," he said.

IT related innovations will be vital to winning customers from the corporate sector, where often companies decide all their employees will bank with a particular entity.

To win such block customer deals, banks will have to show themselves to be very IT enabled, automated and quick to serve.

"This needs the speedy implementation of core banking software applications that will connect every branch and make it easy to determine how much business a branch did any day."

Core banking solutions, once adopted fully, will definitely make some jobs redundant, the general manager said.

"Corporate customers such as IT companies, with large numbers of young staff, going to private banks has already begun to put pressure on us," says one senior official at another bank. The young hated queues and loved the Net and mobile phones.

"Soon, we will also have to think of setting up dedicated ATMs (automated teller machines) within the campuses of the companies and offer rival services," he said.

Some public sector banks had begun to consider outsourcing functions like marketing of loans. So, outsourcing processing of applications, disbursals and even recovery may not be that far away.

A spin off would be, Saving on real estate costs. "With fewer staff and fewer customers coming into the branches (preferring to use ATMs and the Internet) , "we won't need to have such huge branch offices," the general manager said.

Not every one agrees. "Call centre staff are not our traditional customers," the official from the second, larger bank said.

"We want to keep our traditional mould. Our customers are different. There are millions of retired people in the country. How many of them do you see banking with the new private banks? We will serve them better, but without outsourcing."

Outsourcing or not, technology or not, the need for hiring specialists was definitely critical. Banks will soon be required to rate their assets and among the tools needed will be a strong management information system.

"We are spending so much money on IT, but I worry about not enough thought going into making our MIS robust. The data we collect from the smallest branch catering to a few villages, to the corporate headquarters may turn out to be unreliable. Experts will be needed to ensure that policies are based on the right conclusions drawn from analysis of accurate data," the economics expert said.

All this means "a revamp and complete restructuring of our human resources departments," he said. Reserve Bank of India [Get Quote], the country's central bank, could think about an external audit of HR practices in the public sector banks.

"In all this we may even have to learn to be wary of the IT companies. They break up their solutions into modules to make more money." Technology is good, but intelligent and responsive staff are better, he adds.