Bankable option: VRS is a good option, but it does not address the problem of inefficiency

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September 5, 2020 5:40 AM

SBI stands to save Rs 2,171 crore if 30% of its employees opt for VRS. If the plan is successful, other PSBs should take a leaf out of SBI’s book and institute such schemes to create leaner structures.

However, even if SBI can achieve this, it still does not address the issue of inefficiency as the scheme targets officers and award staff. However, even if SBI can achieve this, it still does not address the issue of inefficiency as the scheme targets officers and award staff.

Although banks like SBI had offered VRS scheme to cut the flab after the merger—almost 4,000 SBI employees opted for the plan in 2018—but employee costs still account for a significant share of the public sector banks’ expenses. An analysis of financials for SBI and HDFC bank show that employee cost at the PSB was more than double than that of its private-sector counterpart. Given SBI had highlighted the issue in its fourth quarter report, it is not surprising that it has now mooted a plan to offer VRS scheme for its employees. SBI stands to save Rs 2,171 crore if 30% of its employees opt for VRS. If the plan is successful, other PSBs should take a leaf out of SBI’s book and institute such schemes to create leaner structures.

However, even if SBI can achieve this, it still does not address the issue of inefficiency as the scheme targets officers and award staff. Last year, this newspaper had that PSBs had more people employed in clerical and support staff jobs than officers. Another issue that remains unaddressed is the hiring of a specialised cadre. PSBs face a shortage of specialised staff like risk officers. This year’s Economic Survey also highlighted this emphasising that the government needs to allow entry of specialised staff and introduce ESOP options so that employees have some skin in the game. As per the Economic Survey, in 2019, every rupee of taxpayer money invested in PSBs, on average, lost 23 paise. In contrast, every rupee of investor money invested in private banks on average gained 9.6 paise. So, while a rupee invested in PSBs fetched a market value of 71 paise, a rupee invested in a private bank got over three times.

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