While the manufacturing sector battles rising input costs and lower offtake, the banking sector battles higher cost of procuring funds and managing manpower costs. In the latter, the private sector seems to be facing the brunt as it has been seeing a significant rise in staff costs over the past five quarters. And this, if not managed, will blunt the edge of manpower productivity advantage the private sector had over its overstaffed public sector (PSB) counterparts.
In the case of PSBs, the ratio of staff cost to total income at the aggregate level has showed a decline during April to June 2008 over the same time in the previous year while the same ratio has grown for private banks. However, the PSBs have a ratio that is much higher than that of the private sector banks.
The aggregate income of the 28 PSBs have increased by 24% (CAGR 5.5%) from Rs 54,805 crore in April-June?07 to Rs 67,968 crore in April-June? 08. Their staff cost has increased by 1.4% (CAGR 0.4%) during the period, decreasing the ratio of staff cost to total income from 13.86% in April to June of 2007 to 11.34% in April to June 2008.
Private banks, on the other hand, has achieved a 21.6% growth (CAGR 5%) in total income during the first quarter of this year, over the previous year. The staff cost has increased significantly by 28.7% (CAGR: 6.5%) to Rs 1,969 crore during April to June 2008, from Rs 1,530 crore during April to June 2007. The staff-cost-to-total-income ratio marginally increased from 8.14% in the previous year to 8.61% in April to June 2008.
Significant increase in staff cost was seen in the case of HDFC Bank. The staff cost compounded growth rate of HDFC Bank was 17.47% during the study period.
The staff-cost-to-total-income ratio of HDFC Bank increased from 10.75% in April to June 2007 to 12.82% in April to June 2008. In Axis Bank also, the staff cost compounded growth rate was 9.63%. The ratio of staff cost to total income decreased from 7.87% to 7.39% during the above period.