Editorial: What about efficiency?

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Published: May 27, 2015 12:25:25 AM

Bank unions get more funds, now to look at KRAs

Given that the banking unions began with a demand for a 25% wage hike, the Indian Banks Association (IBA) has probably struck a good deal to get them to agree to a 15% hike. While the hike translates into an additional salary burden of R23,625 crore for banks—R41,850 crore, providing for superannuation and other benefits—over a five-year period between November 1, 2012 and October 30, 2017 (salary revisions happen every five years, and the last one took effect in 2007), banks claim the burden will be offset by the increased efficiency and productivity of nearly 10 lakh employees. Given the stress in the banking sector—Crisil estimates gross NPAs of banks will shoot up to R4 lakh crore by the end of FY16, from the FY14 level of R2.6 lakh crore —this had better be true. What does look a bit odd though, is that for an industry where client servicing is so important, the negotiations should include bankers—the officers of private sector banks are, by and large, not covered by the negotiations—getting two extra holidays in a month by working longer hours on other days; you would think the large number of public holidays would be enough.

Which is why the PSU banks, who will have to shell out the bulk of this extra money, have to carefully start monitoring productivity since they already have high cost-income ratios as compared to their private sector counterparts, in no small measure due to the financial inclusion and job-creation pressures. While ICICI has a cost-income ratio, as per research by EY, of 69.61, for Punjab National Bank and State Bank of India, it is at 76.18 and 79.27, respectively. Similarly, both PNB and SBI have low profit per employee figures, of R0.55 million and R0.49 million, respectively, while for ICICI, it is R1.40 million. Apart from the fact PSU banks pay much the same level of salaries at the lower levels—which is where most of the pay hikes will be concentrated—and have a huge problem in matching salaries at the level of senior management, as the Khandelwal committee pointed out, there are other problems PSUs face. There is considerable flab at the junior management level while at the mid- and top-management levels, positions are not adequately manned. In fact, nearly 4 lakh mid-management positions in PSBs will become vacant in the next four years. It is unclear as to how this problem is going to be dealt with.

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