According to him, the main disadvantage of offering a VRS is that there is high possibility of talented staff (and officers) leaving the organisation. The VRS should be bank-specific and help banks reduce only unwanted staff he said, adding, "To retain efficient employees, the bank should give promotional opportunities and special training."

In BoB, of 140 employees who have taken VRS recently, 100 employees have already joined private or foreign banks.

Kannan got into banking by accident. A chartered accountant by profession, he joined the bank in 1965. He not only witnessed the post-nationalisation scenario in the banking industry but played a major role in helping BoB to expand its services to the small-scale sector and priority sector.

Aftera 27-year stint with the domestic operations of BoB, in 1982, he was posted in New York and London. He returned to India in 1986 and was chosen to head Dena Bank in 1992. Looking back, he said: "Dena bank was a challenge as it was only one fifth of BoB in size." In January 1995, he returned to BoB as chairman.

He returned to BoB at a time when the bank was facing capital adequacy problem. In BoB, the main problem was not of "expansion of banking activity" but ways to improve the performance of the bank.

According to him, the problem faced by public sector banks today is how to reduce staff in effective manner and increase productivity. "These banks will have to introduce seven-day banking or specialised two-three day banking or shift banking at areas where the need for banking services is negligible. For instance, as rural banking is a seasonal banking banks can have seasonal bank branches," he said. "The main problem facing the Indian banking system is controlled management and lack of bank-specificrecruitment system to encourage efficiency and skill-based training.

Originally, all the banks were running well before nationalisation as the main focus was on skill and competence," he said.

According to him, in the current structure, not much stress is given on specilisation as employees are expected to serve all the departments irrespective of their skills. Any decision relating to promotion on salary should be left to the banks, he said.

One way of improving the efficiency of banks is to decentralise the management and appointing shareholders' nominees on the boards, he said. "Banks should give more importance to customer-relationship and give more stress on need-based banking," he said.

On the role of RBI as a regulator, he feels the central bank should give freedom to each bank to decide their core competency and evaluate them on only those basis. "The central bank should not lay down any rules or regulation for banks... Let it allow banks to frame their own policies and monitor how they arefollowing the policies.. These policies should be framed keeping in mind the national interest," he said.

According to him, decision-making has become a major casualty in the public sector banks. "High-risk decisions today are taken by lower level management while low-risk decisions are taken by senior management," he said.

"In the first phase of reforms, the banking industry tackled problems like growing non performing assets (NPAs). The second phase of reforms has shown us that even a good asset can turn bad unless properly monitored. Public sector banks today have realised that to be a step ahead of competition, they will have to offer better services at the lowest cost," he said.

"At BoB, we give more stress to cross training and international exposure which has helped us in strengthening our international operations and improve the overall managerial skills of our employees. We also follow very strict accounting regulation by making excess provisioning," he said.

According to him, the policy ofthe bank is to reduce high establishment cost and prop up productivity per employee.