Higher retirement age, variable pay for public sector bank employees on cards

Written by Anto Antony | New Delhi | Updated: Jun 4 2010, 06:11am hrs
Employees of public sector banks (PSBs) could soon get incentives like their private sector counterparts to perform better and acquire new skill sets. A government committee has recommended 15-20% variable component in their salary package, along with the removal of the existing upper limit for their remuneration. It has also pitched for a hike in retirement age to 62 years from the current 60, sources in the committee told FE. The committee, set up by the finance ministry, is expected to submit its report next week.

Significantly, if the committees recommendations are accepted, each bank would be free to fix its salary structure based on its financial strength and also reward the highly-skilled with out-of-turn promotions.

The proposals are aimed at infusing a greater degree of professionalism in Indias banking industry, which is on the cusp of a makeover with the slow and steady globalisation of the financial sector.

Indias 27 PSBs have a combined manpower strength of 7 lakh. But the industry which accounts for 70% of the banking business in the country is experiencing a shortage of talent in high-end areas like risk management and treasury operations. Over 58% of middle-level managers in PSBs will retire in a couple of years.

The panel, headed by Bank of Barodas former chairman AK Khandelwal, has recommended that each public sector banks be allowed to settle salaries for its employees in line with their specific skill sets and the banks overall performance.

This will be an added incentive for existing employees to constantly upgrade their knowledge levels and skill-sets.

Set up last year, other members of the panel are MV Nair, CMD of Union Bank of India, Deepak B Phatak of IIT-Mumbai and TV Rao of IIM-Ahmedabad . When contacted, Nair, who is also chairman of Indian Banks Association (IBA), told FE that the report to be presented next week would have measures needed to revamp recruitment processes, career and succession planning and training.

PSBs follow an industry-wide wage settlement brokered by IBA once in five years, which will be scrapped if the recommendations are accepted. It may be recalled that an earlier attempt by IDBI Bank to fix the wage structure of its own employees had to be shelved due to opposition from employee unions.

Following the Sixth Pay Commission award for central government employees, bank employees were given a 17.5% salary hike late last year, as per a deal struck between IBA and employees unions. The service range of PSBs is becoming bigger and more complex, and there is a need for employees with specific skills, Nair said. Many PSBs are not able to recruit and retain skilled people in key functional areas like risk management and treasury operations, said another member of the panel who requested anonymity. The current salary structure is not attractive enough to stem attrition. The committee feels that promotions in highly-specialised areas should be in line with expertise rather than seniority.