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Downsizing: 11% bank employees close accounts

BS Bureaus

Till about an year ago, the voluntary retirement scheme was an anathema in the public sector banking industry, possibly the most over-manned white-collar citadel ruled by trade union leaders.

Things changed overnight. Barring the Mangalore-based Corporation Bank, the entire public sector industry witnessed marching of 99,452 employees, or 11 per cent of the total staff strength.

This is extraordinary by any standard. The response was actually even higher with 1,26,711 applications (of a total strength of 8,63,117) seeking the VRS. The total cost incurred by this programme was a staggering Rs 102.93 billion.

The mother of all VRSs took place at State Bank of India, which has been able to slash its rolls by 20,849.

While Canara Bank downsized by 7,716, Bank of India brought its numbers down by 7,547 and Central Bank by 7,286. These four together accounted for over 43 per cent of the total downsizing done by the public sector banks.

But this is the story of only the public sector banks. The private sector-both old and new-is not showing the door to its employees. While the new private banks have lean and mean staff structures, the old ones are still dominated by trade unions whose leaders are not easy to defy.

Foreign banks, however, periodically cut their staff strength. Standard Chartered Grindlays ran a separation package in June this year.

Technology is the key driver for change in the Indian banking sector. It has not only helped customers in getting better services like 'anywhere banking' and 'Internet banking,' but also helped banks change the way they function.

Says a senior official from a public sector bank: "With technology in place, most of the work is done with minimum manual intervention. The manpower has now been released for marketing, recoveries of loans, etc. Technology has also helped in improving customer service."

And the trade unions are no longer opposing technology.

"The writing on the wall is clear. We have to accept that in this age of competition we can't afford to say no to technology," points out a trade union leader.

The main reason behind the introduction of the VRS in the state-run banks is the bloated staff cost.

For public sector banks as a group, the average staff cost works out to around 65 to 70 per cent of total operating expenses while for the new private sector banks it works to around 16 per cent. In case of foreign banks, the staff costs hover around 30-35 per cent.

The staff cost of State Bank of India is 69.43 per cent of the operating cost.

Bank of Baroda's 71 per cent, for Oriental Bank of Commerce it is 60 per cent, Bank of Maharashtra's 78 per cent and Uco Bank's 82.83 per cent. Compare this with the new private sector banks-IndusInd Bank's staff cost is around 10 per cent, IDBI Bank's 22 per cent, HDFC Bank's 25 per cent and ICICI Bank's 16 per cent.

"Even after the VRS is implemented, some of the banks are still over-staffed. Productivity is still low. Ideally, the VRS should be an annual phenomenon," said the chairman of a large public sector bank.

Incidentally, the finance ministry stayed away from the entire exercise. The Indian Banks' Association devised the formula, which was accepted by the industry after a formal vetting of the banking division of the ministry.

Employees over 45 years of age were eligible for the 'generous' scheme which offered two months' salary for every year completed or the residual service period, which ever is lower.

Post VRS, the public sector banks are finding it tough to run operations efficiently as there are staff shortages at some pockets. Plans are afoot to restructure the organisation by merging or closing some branches and abolishing at least one tier of the organisational structure (either zonal or regional offices) to avoid duplication of work and slow decision making.

Nevertheless, productivity has improved due to downsizing.

At Punjab National Bank, for instance, business per employee has risen by as much as 34 per cent to Rs 14 million in the last one year. PNB chairman SS Kohli, who is also the chairman of the Indian Banks' Association, attributes the growth in BPE to the success of the separation scheme.

Together, the 27 public sector banks showed a 26 per cent growth in BPE, which rose to Rs 15 million at the end of March 2001 as against Rs 12 million in 1999-2000.

On the other hand, the new private banks are on a recruitment spree. This year IDBI Bank is recruiting around 500 employees and IndusInd 150.

"The bank is in the growth mode. We are expanding our branch network and also introducing a lot of new products," said IDBI Bank's head of human resources Ulhas Deshpande.

IndusInd Bank's senior vice-president Suresh Pai said: "The bank is opening around 100 outlets this year."

Old private sector banks suffer from huge workforce like their compatriots in the public sector. The staff cost as a percentage of total operating expenses in Bank of Rajasthan is at around 65 per cent while in United Western Bank it is at 66 per cent.

"As these banks have introduced new technology, a lot off staff will be redeployed for other purposes. However, retrenchment may not be possible as the employees are highly unionised," said a market observer.

Standard Chartered Bank and Standard Chartered Grindlays Bank had come out with an early retirement scheme in June, which was taken up by 566 non-management employees. The average pay-out was around Rs 1.9 million per person.

Standard Chartered Bank had spent Rs 1.65 billion on a VRS in 1999, which saw around 1,000 employees opting for it, before the merger with ANZ Grindlays Bank.

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