Business per employee for traditional banks?public sector and old private sector banks?has continuously improved during the past 12 years by nearly 7.29 times. Employees’ Productivity and Cost, a comparative study of banks in India during 1997 to 2008 by Sharad Kumar and M Sreeramulu, published by the Reserve Bank of India (RBI) as one of its occasional papers, noted that business per employee for traditional banks has gone up from Rs 75.28 lakh to Rs 549.21 lakh between 1997 and 2008.
?In case of modern banks ? new generation private sector banks and foreign banks ? the business per employee has increased only 3.06 times, less than half compared to the increase for traditional banks during the same period. It has, however, marginally declined during 1999, 2001, 2002, 2005 and 2007 compared with the previous years for the modern banks. The ratios of business per employee between modern and traditional banks have decreased drastically from 5.28 times in 1997 to 2.21 times in 2008, indicating that the gap in business per employee between modern banks and traditional banks is consistently reducing due to the efforts made by the traditional banks,? said the study.
Talking about the profit per employee, the study revealed that this parameter has increased both for traditional and modern banks from 1997 to 2008. However, this increase has been significantly higher for traditional banks (6.79 times) compared to modern banks (2.73 times) during the period of 12 years. There has been decline of profit per employee during 1999, 2001and 2005 compared with the previous year both for traditional and modern banks, indicating effect of some external factors impacting profitability of banks during these years.
The employee cost as a ratio of operating expenses in traditional banks has remained more or less constant from 1997 to 2002, and reduced gradually thereafter. In case of modern banks, the ratio fluctuated within a narrow range and reduced marginally up to the year 2006, before showing an upward trend during 2007 and 2008.
The employee cost to operating expenses for traditional banks remained more than double for modern banks till 2006. This ratio, however, decreased significantly during 2007 and 2008 (1.77 and 1.65 times, respectively), indicating that efforts made by the traditional banks to reduce the wage bills in relation to operating cost made an impact during recent period, said the study.
As regards employee cost to total business, it has been consistently reducing for traditional banks from 1.45% in 1997 to 0.68% in 2008. On the other hand, it has been increasing for modern banks in a very narrow range from 0.57% to 0.64% up to 2004, thereafter increased drastically to 1.23% in 2005 and again reduced to 0.88% in 2008. This trend clearly indicates that the traditional banks have reached the level where they can very well compete with the modern banks as regards to the marginal cost of expanding new business (deposits plus advances).
While comparing the 12-year data from 1997 to 2008 on productivity factors like business per employee, profit per employee and employee cost factors like employee cost to total business, employee cost to total assets and employee cost to operating expenses, it was observed that the performance of the modern banks like foreign and new private sector banks was much superior than the traditional banks like public sector and old private sector banks.
However, the gap between the performance of modern and traditional banks on all the five variables has shown a decreasing trend, which has significantly reduced during the period of 12 years under study.
The traditional banks are yet to resolve a number of legacy issues related to people and processes for improving the productivity and reducing cost in order to compete with the modern banks.
It is interesting to observe the reduced gap in business per employee owing to improved performance of traditional banks. This gap is likely to be reduced further due to certain measures taken by the traditional banks recently. However, the trend has to be closely monitored to come to a firm conclusion.
The number game
ups & downs
•In case of modern banks? new generation of private sector banks & foreign bank ? the business per employee has increased only 3.06 times during 1997 to 2008, less than half compared to increase for traditional banks
•It has, however, marginally declined during 1999, 2001, 2002, 2005 and 2007 compared to the previous years in respect of modern banks
figure mismatch
•The employee cost as a ratio of operating expenses in respect of traditional banks has remained more or less constant from 1997 to 2002 and thereafter reduced gradually
•In case of modern banks, the ratio fluctuated within a narrow range and reduced marginally up to the year 2006 before showing upward trend during 2007 and 2008