State-run banks line up VRS, to cut staff by 10%

State-run banks line up VRS, to cut staff by 10%
Reuters

MUMBAI JAN 14: Withering competition from nippy young private outfits has forced India’s state-run banks to use the lure of cash in a bid to slash their bloated greying workforce by at least 10 per cent. Almost all of the country’s 27 state-run banks, which employ about 850,000 people and account for more than 75 per cent of the banking industry’s deposits and advances, have lined up voluntary retirement schemes (VRS) for staff.

Bankers and analysts say the schemes are working well. Payments range from about Rs 10 lakh ($21,490) to Rs 500,000, relatively large sums in India that are equivalent to several years’ wages for most workers.

State banks see the schemes as essential to improving their balance sheets, harnessing new technology and gingering up the work culture of the staff who remain. High staff expenses make up a large chunk of state banks’ total costs. Analysts have long seen this as an obstacle to their lowering lending rates, which now range from 12 to 13 percent.

Bimal Jalan, governor of the Reserve Bank of India (RBI), recently told public sector bankers that Indian banks’ costs, and levels of non-performing loans, rank among the world’s highest. State-run banks have faced strong competition in recent years from private banks that are tech savvy and have relatively fewer staff, particularly those set up after the RBI opened up the banking sector in 1994.

The new banks offer a wide range of services and products, including Web-based banking, and have positioned themselves between the dowdy state-run banks and foreign banks, which are popularly seen as catering to the high-income customer.

In just six years - by the end of March 2000 - the new private banks had grabbed a 5.3 per cent share of total banking industry assets. Analysts say the voluntary retirement schemes will cut staff costs for state-run banks by at least seven to eight per cent when complete.

The stock market has welcomed the moves, with shares of State Bank of India (SBI) and Bank of Baroda (BoB) gaining more than 21 per cent and 13 per cent respectively after they announced their plans in the last week of December. The 30-share Bombay index has gained 4.4 per cent during the same period.

The schemes follow guidelines issued by the Indian Banks’ Association (IBA), an umbrella group. “The terms offered are quite attractive and employees who are opting for it, especially in the 50-year plus category, are doing so as it benefits them,” K.C. Chowdhury, IBA’s chief executive officer, told Reuters.

Officials say employees from managers to blue-collar workers are opting for early retirement. “With employees of 50-plus age group going, banks will have more elbow room to induct younger and more skilled people,” said a human resource consultant to a state-run bank. While financially sound banks like SBI, BOB and Canara Bank are pying employees cash to accept early retirement, others like the weaker United Bank of India, UCO Bank and Indian Bank are offering a mix of cash and bonds.

PS Shenoy, chairman and managing director of state-run Bank of Baroda, expects 5,000 employees, or 12 percent of his bank’s workforce, to opt for a ‘golden handshake.’ The average payout per employee ranges from 500,000 rupees to 600,000 rupees in most banks.

SBI, India’s largest commercial bank, will launch its scheme on January 15 and has put in clauses to deter highly specialised employees and top management from opting for VRS. Yet analysts expect 10 per cent of its 233,000 workforce to opt for early retirement, trimming the bank’s profit by at least Rs 1000 crore in the fiscal year to March 2001.

State-run banks’ total profit in 1999/00 was Rs 5113 crore compared with Rs 3253 crore in 1998/99, helped by an economic recovery.