Growth in PSB staff costs higher than private peers

Public sector banks’ (PSBs) growth in staff cost vis-a-vis private banks was significantly higher during 2009-10. However, the staff cost spent declined for both private and public sector banks during 2009-10 compared with the previous fiscal.

According to a study on 27 PSBs and 18 private banks, growth in staff cost in the case of PSBs marginally dipped to 18.7% in 2009-10 from 21.6% a year-ago, whereas the same for private banks significantly decreased to 10.5% from 25.8%.

Total staff cost of the PSBs increased to Rs 41,048 crore during 2009-10 from Rs 28,432 crore in 2007-08 and Rs 34,577 crore in 2008-09. Among the PSBs, Central Bank of India registered highest increase in growth of staff cost, to 21.3% during the study period from 4.8%. This can be explained from the bank’s performance. While interest income of the lender increased 15.4% during 2009-10, net profit rose 85.3% to Rs 1,058 crore.

While Andhra Bank’s staff cost rose to 32.1% from 22.5%, the same for Bank Of India went up to Rs 2,296 crore from Rs 1,657 crore in 2007-08. In 2009-10, SBI had the highest staff cost of Rs 12,754 crore, followed by PNB (Rs 3,121 crore) and Bank Of Baroda (Rs 2,350 crore).

The staff cost to interest income ratio of PSBs dropped from 13.44% in 2007-08 to 12.66% in 2008-09 and increased thereafter to 13.39% last fiscal. A steady decline in the ratio was registered by nine PSBs, including Bank Of Baroda, PNB,Uco Bank and United Bank of India.

In 2009-10, the increase in staff cost of private banks was lower compared to the PSBs. Among the 18 private sector banks, six, namely Axis Bank, Bank Of Rajasthan, Dhanlaxmi Bank, IndusInd Bank, J&K Bank and Karur Vysya Bank showed more than 25% increase in staff costs.

At an aggregate level, the staff cost of the private banks rose from Rs 6,617 crore in 2007-08 to Rs 8,324 crore in 2008-09 and further to Rs 9,200 crore last fiscal. The staff cost of all the private sector banks’ increased in 2009-10, except for ICICI Bank and Kotak Mahindra Bank, DCB and Catholic Bank.

The staff cost of ICICI Bank steadily decreased from Rs 2,079 crore in 2007-08 to Rs 1,972 crore in 2008-09 and further to Rs 1,926 crore in 2009-10.This can be explained from its performance. The interest income of ICICI Bank decreased by 17.3% to Rs 25,707 crore during 2009-10 from Rs 31,092 crore during 2008-09.

The staff cost to interest income ratio of private banks steadily rose from 9.77% in 2007-08 to 11.31% last financial year. A similar trend was seen in Dhanlaxmi Bank, HDFC Bank, IndusInd Bank and J&K Bank.

Last fiscal, HDFC Bank had the highest staff cost, followed by ICICI Bank and Axis Bank. The total number of employees of the bank stood at 51,888 as on March 31,2010. According to directors’ report, HDFC Bank has consistently believed that broader employee ownership of its shares has a positive impact on its performance and employee motivation.