On the basis of the individual schemes framed by banks, a common VRS forpublic sector banks will be framed.

The finance ministry note follows an announcement made by special secretary(banking) Devi Dayal last month that the North Block was considering a VRSpolicy for banks to cut operation costs. In a recent communique to chairmenof state-run banks, the ministry has sought suggestions for framing VRS (inline with the VRS introduced in public-sector undertakings in 1988) andsuggest steps to double their profits. It has also directed banks to reducethe number of branches, if necessary.

"As public-sector banks have the highest establishment expenses aspercentage to total expenses and lowest business per employees compared toforeign banks and private-sector banks, these banks should frame strategiesto cut staff and reduce establishment costs," the ministry note said.

According to the communique, the banks' establishment expenses as percentageof total expenses are over 20.13 per cent against foreign banks' cost of7.66 per cent and private-sector banks' 3.04 per cent. The business peremployee of state-run banks is as low as Rs 89.20 Lakh against newprivate-sector banks' Rs 8.85 crore.

According to the ministry, the VRS should cover those employees who have putin at least 10 years of service and below 50 years.

In 1988, the Centre had introduced a VRS for employees of publicenterprises. The scheme-applicable to employees with a minimum 10 years ofservice- entitled an ex-gratia payment equivalent to 45 days emoluments foreach completed year of service or monthly emolument at the time ofretirement, multiplied by the number of months of services left beforenormal retirement date. Under the scheme, an employee and his family wasalso eligible to travel by the entitled class to the place where he intendedto settle.

The earlier scheme was applicable to employees, workers and executives. Thescheme- which proposed a higher ex-gratia payment for exceptional cases-hadalso put a bar on filling up the vacancies.

Insight:
Better late than never
The Government has finally woken up to the reality, that is, the bankingsystem. While the attempt by the finance minister to ask banks to streamlineand reign in operating cost is the right one; it is being done for a reason.

The finance ministry realises that sooner or later the Bank NationalisationAct will be amended and the Government's stake will be reduced either byoffloading to public or by seeking strategic partners. This can only beachieved if the banks are restructured first. Higher employee productivityshould be on the priority list. Other options like branch closures, settingup of asset reconstruction funds and mergers should also be considered.

Aaron Chaze