If you are a banker or an official to regulate and monitor banks or an auditing or inspecting official or an investor in bank shares ,you must read the article which follows below to know the hidden facts and to understand the bitter truth before it is too late.
There is an established practice in almost all coooperative banks to keep the loan account EVERGREEN. To Illustrate and to make it more clear : say a bank disburse a loan of Rs10000 to a farmer and the account become overdue after a year or two , the same bank sanction a loan of Rs20000 or Rs.30000 which enable farmer to repay first loan and avail only extra loan . In the same way bank use to sanction inflated loan year after year which keeps the account always standard.
During the course of time , public sector banks have also learnt the art of keeping the loan account evergreen. They have many tools in their clever brain to keep assets of bank always standard .
First and foremost is the restructuring or rephasing of loan on flimsy ground and second to give additional loan to repay overdue loan. If even after such self deceptive acts ,banks fail to keep the account in standard category they feed wrong information in CBS system so that such accounts may not be identified as NON performing asset the exercise of identification of the system driven NPA. Then they try to prevail upon team of auditors to help them in hiding bad assets from the balance sheet. Next better option is to sell the bad loan to ASSET RECONSTRUCTION COMPANY known as ARCs at discounted rate without caring for loss bank has to suffer and ultimately investor has to suffer by such unhealthy actions.
Lastly they have option to write off the loan or sacrifice major portion of overdue loan which again adversely affects the bottomline of the bank and is indirectly a cheating treatment with investors and employees whose earnings depend on health of bank.
Prudent bankers who are apt in art of keeping assets evergreen and standard , who know the art of managing auditors and concerned officials at various offices may only become ED or CMD of a bank .One who preach sermons to others but do not follow, one who can deliver good speech , who can manage boss and keep him happy by hook or by crook may only get the chance in promotion. In our country none is bothered of real health of the system, real health of the organisation and real welfare of common men ,but everyone is busy is dressing and decorating the outer appearance attractive .And this is the root cause that an institution or a country all of a sudden lands in unmanageable crisis. http://in.reuters.com/article/2012/06/20/banks-india-borrowers-restructuring-idINDEE85J03P20120620
(Reuters) - Lenders to Hotel Leela(HTLE.NS), a 5-star chain that is more than two months behind in payments on $700 million of debt, are likely to bite the bullet and amend the loan terms rather than declare it in default, say bankers involved in the talks.
Restructuring corporate loans - allowing banks to dilute payment terms without classifying loans as bad - is on the rise in Asia's third-largest economy, providing a lifeline to borrowers struggling in a sharp economic slowdown, but piling more stress on bank balance sheets.
Hidden weaknesses in bank balance sheets are a greater risk as Indian banks' reserve coverage ratio - the buffer a bank has to set off against loan losses - is among the lowest in Asia.
Officially, 3 percent of loans in India are bad. Including restructured or "impaired" loans, for which banks don't have to set aside heavy provisions in case of default, the figure is about 7 percent, according to analysts.
The reality is worse, say some bankers and industry experts, who say many loans are restructured outside official channels, with some banks and borrowers taking advantage of harder-to-track "evergreening" of loans to avoid declaring default. Under evergreening, banks provide additional loans to stressed borrowers, often indirectly, to enable them to repay existing loans. That can keep a loan from going sour, but it ratchets up a bank's exposure to a troubled credit.
It's estimated that at least a tenth of loans to the real estate sector - where restructuring rules are stringent - are stressed, as against the 3-4 percent cited by banks, said Amit Goenka, head of capital markets at UK-based Knight Frank.
"There's a certain amount of under-reporting arising out of evergreening of loans, which can never be precisely derived," said A.S.V. Krishnan, banking analyst at Mumbai brokerage Ambit Capital.
Lenders are also staring at the prospect of more bad loans as the economy shudders. Standard & Poor's has warned that India could become the first of the BRIC economies to lose its investment-grade status on slowing growth and political roadblocks to economic policymaking.
GRAPHIC: Restructured assets, click r.reuters.com/buz78s
GRAPHIC: Stressed assets, click r.reuters.com/byb78s
In the year to end-March, Indian banks sought to restructure a record $12 billion in corporate loans through the Corporate Debt Restructuring Cell (CDR), an RBI-approved consortium of lenders - an increase of 156 percent on the year before. And that excludes billions of dollars in loans restructured outside the official channel, including $4 billion of Air India debt and about $5.5 billion of loans at loss-making state electricity boards.
"Going to CDR has almost become fashionable these days. Borrowers are exploiting the CDR mechanism without exhausting other genuine avenues of redressing their problems around over-leverage," Ambit's Krishnan said.
The recent surge in loan restructuring may just be putting off the inevitable, though. Ratings agency CRISIL expects new loan restructuring over fiscal year 2012 and 2013 to hit $36 billion, and analysts warn that 25-50 percent of such loans are likely to turn bad and hit banks' profitability. Fresh restructuring of loans in the year to March 2011 was negligible.
"Restructuring helps the company sometimes, but if you step back and see it leads to 'evergreening' of loans which can cause problems going forward," said Vikram Bajaj, director at Renaissance Capital Advisors, which advises companies on debt restructuring. "Basically, what you're doing is taking a call that the borrower may come out of the situation and you're giving him more money, but the odds, in most cases, are against it. Kingfisher Airlines is the biggest example of that."
In the best-known recent example of a restructured loan turning sour, liquor baron Vijay Mallya's Kingfisher Airlines(KING.NS) defaulted to most banks on a $1.4 billion loan.
PERILOUS PRACTICE
Bankers defend the practice of restructuring loans, which typically entails extending tenure on the loan, easing interest rates or even converting debt into equity.
"Actively restructuring loans has helped us in controlling slippage," said Pratip Chaudhuri, chairman of State Bank of India, the country's biggest lender. "We have to live with high restructurings now and look for recoveries tomorrow."
The problem is that many such loans are never recovered and turn non-performing, adding to the challenge of collecting on bad loans in a country where there is no bankruptcy law - the absence of which makes banks more inclined to help borrowers rather than declare a loan to be in default and receive nothing.
At SBI, 43 percent of loans restructured in the year to March 2010 were declared non-performing within two years, said Soundara Kumar, a deputy managing director at the bank.
Central Bank of India, a mid-sized state lender, learned the hard way how quickly a restructured loan can go bad. In November, it agreed to restructure an $80 million loan to steelmaker Electrotherm, which was having difficulty with an order for a client in Tanzania.
Within months of giving a breather to a long-time customer, Central Bank downgraded the loan to non-performing, and was the only listed bank to report a net loss for the March quarter.
"They weren't able to execute the order. So they asked us to restructure the loan, and, in the March quarter, the account slipped. It happened very quickly," said a senior executive at Central Bank of India, who did not want to be identified.
Another state-run lender, UCO Bank, ended its ties with Electrotherm when the steelmaker failed to make timely payments even when it was able to, a bank official told Reuters.
"Electrotherm did not pay us the dues even when they had the liquidity and were still making profits," said UCO Bank Chairman Arun Kaul. UCO has classified the account as non performing and is in the process of recovering the loan, he said.
Electrotherm's investor relations officers could not be reached for a comment for this article.
In another case, lenders including SBI, Power Finance Corp and Rural Electrification Corp (RURL.NS) restructured loans to a hydropower project, which was mired in environmental clearances. The account turned bad within two years of being restructured, said a senior bank executive involved with the loan.
Morgan Stanley expects "impaired loans" - bad and restructured loans put together - for all Indian banks to double to 10 percent of total debt within 18 months.
Although the Reserve Bank of India is concerned about banks' rising bad loans, it does not see a risk due to aggressive debt restructuring. "I believe banks are doing it with understanding, with discretion," said RBI Deputy Governor K.C. Chakrabarty. "If they are not doing, we need to pull them up."
EVERGREENING
While restructuring is allowed by the RBI, the murkier "evergreening" of loans is frowned upon. Several bankers said it is widespread, but declined to give details.
The practice is said to be particularly common in commercial real estate, where tougher restructuring guidelines require banks to classify a loan as non-performing and set aside more funds as provisions - effectively removing any official middle ground between a performing loan and a default.
"Banks have been working actively to avoid such provisioning and classification," said Knight Frank's Goenka. "Real estate provisioning is seen adversely by the regulator and pushes up the cost of lending. This may have led to some evergreening-like measures within the financial institutions."
Hotel Leela, which borrowed heavily for projects in Delhi and Chennai and recently sold a property to raise money, is seeking additional bank loans to pay its debt, said two sources directly involved in the restructuring.
One of its lenders, Syndicate Bank (SBNK.NS), wants Leela's controlling shareholder to put in another 3-4 billion rupees in equity from the sale of a hotel in Kerala before it agrees to restructure the loan, a stance most of its lenders support, said an executive at another bank who has loans to Leela and is involved in the discussions.
Hotel Leela Vice Chairman Vivek Nair did not respond to several calls from Reuters seeking comment for this article.
"Leela is asking for about 600 crore more (6 billion rupees). Banks aren't willing to give as they want this to pay off some debt. That's evergreening. Banks want promoters to get more contribution, equity upfront," said another lender, who asked not to be named given the sensitivity of the matter.
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Danendra Jain----------------- If You like it , share with your friends and colleagues-------------------------------- You may send your valued suggestion to me also at dkjain49709@gmail.com
Sunday, June 24, 2012
How To Keep Loan Evergreen
Tuesday, June 19, 2012
Government Guidelines On Completion of Departmental Proceedingss
Fin Min asks PSU banks to end disciplinary cases fast Published on Fri, Jun 29, 2012 at 15:30 | Source : Moneycontrol.com
Updated at Fri, Jun 29, 2012 at 22:55
Underscoring the need of fast-paced decision making in all state-owned banks, the finance ministry (FinMin) has issued a circular to all lenders to end the lingering process of disciplinary actions against bank employees. Under the new directives, a banking authority has to institute any inquiry within 15 days while the report has to be finalized in three months with an option of three extensions of one month each.
Earlier, the entire process of completing any disciplinary formalities could stretch from one to four years.
"Disciplinary action is like a hanging sword on your head," an executive director of a large Mumbai-based large public sector bank told moneycontrol.com on condition of anonymity.
"Till the final decision comes out, the charge-sheeted official cannot concentrate on anything. A delay in decision not only affects his career but the concerned bank too suffers due to low productivity leading to his stalled decision making ability. Moreover, any mala fide intention of the accused can hamper bank's operation further in an extended stay," he said.
The way to move for disciplinary actions...
There is an internal process to take disciplinary action in case any bank employee upto grade-four (the level below assistant general manger). Firstly, The supervising official first have to report to the bank's chief vigilance officer (CVO), who will study the case and seek comments to determine the nature of the case (mala fide intention or other). Later, CVO will take the final call with an approval from the bank's chairman and managing director (CMD).
It is then, the banking disciplinary authority to set up an inquiry committee by appointing inquiry officer, presenting officer (on behalf of the bank). The accused employee too can have his representative (not an advocate) to defend his counterpoints.
"The dillydallying process of PSU banks must end. Punish the office, if he is guilty or exonerate him from charges. The FinMin move will no doubt improve productivity of bank officials as the resultant tension out of such cases is going to be short-lived," said a general manager from a mid size Mumbai-based bank.
Hurting a banker's career and growth path as well...
Penalties against disciplinary actions can be of two types: major or minor. In case of minor, the accused is generally left with a caution. However, it can hurt a banker's career in hindsight.
A classic example: an AGM from a New Delhi-based bank was charge-sheeted two years back. Meanwhile, he appeared for an interview for promotion to deputy general manager’s post. But his results remained sealed in absence of final settlement of the pending case. He was just exonerated (from his charges) after two years and later he found, he had passed the interview for DGM's post. Accordingly, the bank has just promoted him with due seniority.
A faster disciplinary process could have saved his embarrassment of two years without delaying promotion of a newly selected candidate.
The secretary of financial services, D K Mittal, as many believe, has to be credited for these guidelines. In the last one year since his appointment, he has brought in some positive changes related to human resources policies and other operational areas.
Government Guidelines on checking delay in completion of Departmental proceedings
F.No. 13/5/2012-Vig
Ministry of Finance
Department of Financial Services
(Vigilance Department)
3rd Floor, Jeeven Deep Building
Parliament Street, New Delhi-110001
Dated: 15thJune, 2012
To,
All CMDs of PSBs, FIs/PSIC,
CVOs of all PSBs, FIs/PSIC
POs DRT/Chairman, DRAT.
Subject: Guidelines for checking delay in completion of Departmental proceedings.
Sir,
The issue of disciplinary proceedings in Public Sector Banks has been debated and it has been found that the disciplinary proceedings in PSBs are not being carried out as per the fixed time schedule. It is, therefore, decided that following framework shouldbe put in placefor all disciplinary cases (Vigilance and non-vigilance) with immediate effect:
1. In case, the disciplinary authority decides to institute an inquiry, it should do sowithin 15 days of receiving statement of defence from the charged officer. The Inquiry Officer and Presenting Officer should also be appointed simultaneously.
2. The inquiry report should be prepared and finalised within three months. Thereafter, if an extensionis required, it shall be given with the approval of the Disciplinary Authority and at most three extensions can be given of one month each.
3. Any extension after six months shall be given with the prior approval of the following:
i. Regional Head – Where DA is under the control of Regional Head.
ii. Zonal Head _ Where DA is under the control of Zonal Head.
iii. ED – Where Zonal Head is DA.
iv. CMD – Where ED is DA.
4. All cases beyond six months,CMD will review them on case to case basis with reasons of delay. On quarterly basis, a detailed statement (case by case) should be put up to the Board.
5. In Vigilance cases beyond six months,a statement on quarterly basis should also be sent to CVO, DFS in addition to putting up to the Board.
This issues with the approval of Secretary(FS).
Yours faithfully,
(J.S. Phaugat)
Under Secretary(Vig.)
1. Copy also to the Secretary, CVC for information.
2. Copy to AS(FS)/ all JSs; DIRs; DSs in DFS.
3. Copy also on Webpage of DFS.
Tuesday, June 12, 2012
Why Staff Cost is Higher in Public Sector Bank
Number of officers performing the work such as voucher posting, data entry in finacle, counting cash , dispatch of letters etc in a bank which should have been done by clerk is at least 20% of total number of staff in a bank.
Suppose if 5000 officers ( scale I , scal II and scale III and above ) are constrained to work as clerk in want of adequate number of clerical staff in a branch of a mid size bank, the bank has to pay at least two lac rupees per year officer more than what they could have paid to clerk, had there been adequate number of clerks in a branch to perform the work which officers are constrained to perform in want of adequate number of clerks in the branch..
It is remarkable to know that average pay of a clerk is Rs.2.00 lacs per year whereas that of an officer is Rs.400000/ per year.
5000 X 200000 = 100 00 00000 i.e. Bank lost Rs. 100 crore per year due to faulty policy of bank.
Similarly a mid size bank has recruited thousands of officers in scale III or scale II directly from the market and they are doing the same work which otherwise a scale I officers could have performed easily. Average pay of a scale I officer is Rs. 2.5 lacs whereas that of scale II and scale III is Rs.4.5 lacs. It means excess payment of Rs. 2.00 lac per year to at least two thousand officers recruited directly from market / campus for performance special job.
2000 X 200000 = 40 00 00000 i. e. Bank lost at least Rs.40.00 crores per year.
Similarly banks have spent unwarranted money of training staff but in fact staffs were neither suitably trained nor were they effectively used to perform the work for which training was imparted.
Bank spend lacs and crores of rupees in organizing functions for inauguration of new branch, for inauguration of ATM, for celebration of renovation of a branch, red carpet welcome to dignitaries who are invited to preside such expensive functions and crores of rupees are spent in offering costly gifts to VIP dignitaries from various offices including from higher officers of the same bank who use to visit a branch or a town.
If RBI governor or Dy governor or CMD of any bank or a minister or local IAS officers, or local Member of Parliament or MLAs visit any town, each public sector bank spend lacs of rupees to extend red carpet welcome.
Altogether theses expenses constitute flattery expenses incurred to win the heart of powerful officials so that such flatterers may get early promotion, good posting and acquittal from punishment if their evil works are detected by auditors and inspecting officials.
In brief flattery cost and comfort cost in public sector banks is far greater than that in private banks.
Crores of rupees are spent by banks on organizing business plan conferences, on training colleges and on payment of various types of incentives every year by almost all government banks. But unfortunately most of them fail to achieve desired goal and to keep their staff happy and to keep their banks safe and profitable.
Above are also few reason why staff cost is higher in government banks and why quality is facing erosion year after year. It is not true that wage structure of bank employee is causing load on wage bill of government banks but it is mostly misuse, improper use and inadequate use of manpower employed in a bank which has caused in increasign staff cost of government banks compared to private banks.
Monday, June 11, 2012
Court Grant Stay On Promotion Process
I have come to know that the officers of the bank hired costly advocate and deputed senior officers to nullify the effects of stay granted by the learned court. They can spend crores of rupees but the petitioner cannot spend even thousands of rupees. Power of public money will be used to kill interest of public. This is the unique feature of Indian judiciary. Justice is seldom available in our courts to person who cannot hire costly advocates who may plead better and defend the illogical stay taken by bank management in all cases in the past.
Banks are in hurry to promote their close friends by hook or by crook. After all it is a matter of ego for a few top bosseswho seldom cares for the interest of the organization and neither for their children working in the bank.
In earlier years banks used to prepare a merit list of officers just equivalent of 100% of identified vacancies as on date of announcement of promotion process. This year they have created merit list of officers promoted to higher scale which is 200% of identified number of vacancies.
Further they have committed fraud even in identification of vacancies by including the vacancies which has not yet arisen but which will arise after several months .Management of bank is bent upon rejecting senior officers and promoting young officers of their choice and for this purpose they have taken permission from MOF on flimsy ground to expand zone of consideration and reduce the eligibility for promotion of officers from erstwhile 7 years to less than 2 years.
It is unconstitutional, improper and unjustified to exclude officers of experience equivalent to two or three decades from promotion process only on baseless and biased marking given by his assessing authority in a particular year and give chance to young officers who have not spent even two years in a particular year. There are such officers who have been excluded from promotion process whose appraisal used to be best for two decades but all of a sudden corrupt officers in a particular year gave hem marks less than 75 and spoilt his career.
I therefore once again reiterate that as long as promotion of an officer depends on whimsical marks given in Interview and annual performance appraisal report , any officer cannot dream of promotion only based on his quality, talent, intelligence, performance, honesty and integrity. Flattery and bribery will continue to be the key of success as hitherto. The only better solution is to promote based on seniority and remove officers who do not perform after promotion.
There are some banks who call all eligible officers for promotion without giving an option to candidate to apply or not apply for promotion. It means bank management has option to select meritorious officers and is not constrained to promote under compulsion bad officers only because good officers have not applied. It should be the prerogative of bank management to utilize the talent of a good officers and it is possible only when they give opportunity to all on the basis of seniority and only when they stop amending promotion policies as per their whims and fancies.
There are several such officers who performed the best for decades and who were always appreciated by top bosses but who were always rejected in promotion process and on the contrary corrupt and non performers were selected by Interview panel. God knows the reason behind such reign of injustice and God knows how long Ministers and RBI will take to understand the ground reality of HR policies in public sector banks.
Officer as Usual File Writ in Chennai Court Against Injustice
Message from Chidambaram Annamalai ( Collected from Facebook 13.06.12)
Message from Chidambaram Annamalai ( Collected from Facebook 13.06.12)
SUB: WRIT PETITION FILED BY AIUBOSA (AIBOA)
In continuation to our circular No.GS:151 dated 18.05.2012 on the subject, we wish to inform you that the writ petition came up for hearing today at the Madras High Court before the Hon’ble Judge. The Bank’s counsel also represented.
After hearing, the Learned Judge was pleased to adjourn the matter by one week on
the request of the Bank’s Counsel and directed the Bank to maintain status quo and
not to proceed with the selection process in the mean while.
The three serious anomalies are:
1. Applying APAR retrospectively and making 75% in each of the eligible years.
2. Not allowing RDO’s to participate in the General Channel.
3. Not giving Relaxation for Specialised Officers.
Comrades, by reading the order of the honourable Judge one can very easily understand the gravity of the situation and the legality on the matter. We do not want to explain further as the subject matter is in the court.
In the mean time we are given to understand that in some of the states, the leaders of the so called majority association are threatening the officers saying that they will give 50% marks in their APAR in the coming years and will damage their career also if they switch over to AIBOA. The democratic right of an individual cannot be snatched away by any such leaders.
We condemn such autocratic and brutal behaviour of such leaders and AIUBOSA will deal such situations very firmly.
We request all our Office Bearers / CC members of AIUBOSA and State Units to circulate this circular among all officers in your Region / State especially among RDOs, Specialized officers and aggrieved officers of APAR.
With revolutionary greetings,
Yours Comradely,
(D.S. GANESAN)
General Secretary
Saturday, June 9, 2012
Average Pay Per employee in Private And Government Banks
RBI DY
Governor compares average pay per employee in public sector banks with that in
private sector banks.
( Please also read latest submission dated 28th March 2013 on this subject http://importantbankingnews.blogspot.in/2013/03/pubic-sector-banks-policy-of-branch.html)
This again refers to a comparatively study published in newspaper and comments made by Dy Governor RBI Mr. K C Chakravorty who said that average pay of bank employee in public sector banks is 150% of that in private sector banks. Public sector banks are required to perform all types of non productive work such as payment of pension, old age pension, MANREGA payment, teacher salary payment, tax collection etc which private sector banks are not doing.
Two to three decades ago there was a practice to recruit a person in clerical cadre and then after three years and more the person used to get opportunity to appear in test for promotion to officer cadre.Due to this average pay per employee used to be on lower side.
In the reformation era, when full liberty was given to bank management , they almost stopped recruitment of clerks and cashiers .In the name of peaceful IR relation , management of banks chose to recruit officer directly from market. They did not hesitate to recruit officer in higher scale too by paying higher pay on joining itself.
Such unhealthy practices did not lead to corrupt practice only but also resulted in increase in average pay in public sector banks.
During pre-reformation era ,Pay package of clerks used to be almost half of that of officers recruited in scale I. Obviously bank had to pay more for doing same job which a clerk or cashier used to perform.To add fuel to fire bank recruited officers directly in scale II and III and onward which further added to wage burden.
Further bank management allotted work of clerk and cashier to senior officers and juniors and inexperienced officers directly recruited in higher scales were elevated to higher post and higher scale which not only further aggravated the illness of bank but also led to increase in bad assets and which annoyed seniors who served devoted banks for decades .
( Please also read latest submission dated 28th March 2013 on this subject http://importantbankingnews.blogspot.in/2013/03/pubic-sector-banks-policy-of-branch.html)
In public
sector banks, clerks are not given promotion in two to three decades. If clerks
are promoted to officer cadre, the promotee officers continue to perform the
duty of clerk or that of cashier as he or she used to do before becoming
officers. Not only this, there are many scale II, scale III or scale IV
officers who are constrained to perform the duty of cashier or a dispatch clerk
or front line officer.
There are
thousands of senior level officers who are performing the duties which a clerk
of golden era ( the period just
preceding reformation era that begun in the year 1991 )could perform
satisfactorily. Many senior officers at administrative officers are performing
the duties which a low paid telephone operator or a call center guy could
perform better.
To make it more clear in term of pay package , I may say that many officers drawing pay of Rs.25000/ to Rs.50000/ per month in public sector banks are performing the job which is being done in private sector banks normally by employees drawing less than Rs.10000/ per month.
Moreover during sixties and seventies , public sector banks used to have one officer over five to six clerical staff. It means clerk to officer ratio used to be 5 : 1 or 6 : 1. As of now the situation is just opposite to it. It means in public sector banks ratio of clerk to officer is now 1: 5 or 1 : 6 . It means a bank have employees drawing average pay of Rs.40000/ per months are five related to every clerk or cashier staff drawing an average to Rs.15000 per month.
It is pity or it is unfortunate that most of top executives who holds key posts in public sector banks can deliver good speech or can please officials of RBI or MOF by submitting false and concocted information but do not have brain , do not have knowledge and do not have vision on how to increase profitability of any branch or any bank.If branch of any bank run in loss , one cannot dream of bank earning targeted profit .
There are many officers who have been though promoted to higher scale say scale IV or scale V or scale VI under pressure from some God father , they are not found fit for posting at a place of equivalent scale. Thousands of officers though promoted to higher scale continue to perform the work of lower scale. All these have resulted in increase of average pay of public sector banks vis-Ã -vis private banks.
To make it more clear in term of pay package , I may say that many officers drawing pay of Rs.25000/ to Rs.50000/ per month in public sector banks are performing the job which is being done in private sector banks normally by employees drawing less than Rs.10000/ per month.
Moreover during sixties and seventies , public sector banks used to have one officer over five to six clerical staff. It means clerk to officer ratio used to be 5 : 1 or 6 : 1. As of now the situation is just opposite to it. It means in public sector banks ratio of clerk to officer is now 1: 5 or 1 : 6 . It means a bank have employees drawing average pay of Rs.40000/ per months are five related to every clerk or cashier staff drawing an average to Rs.15000 per month.
It is pity or it is unfortunate that most of top executives who holds key posts in public sector banks can deliver good speech or can please officials of RBI or MOF by submitting false and concocted information but do not have brain , do not have knowledge and do not have vision on how to increase profitability of any branch or any bank.If branch of any bank run in loss , one cannot dream of bank earning targeted profit .
There are many officers who have been though promoted to higher scale say scale IV or scale V or scale VI under pressure from some God father , they are not found fit for posting at a place of equivalent scale. Thousands of officers though promoted to higher scale continue to perform the work of lower scale. All these have resulted in increase of average pay of public sector banks vis-Ã -vis private banks.
In public
sector banks a young officer with negligible experience (either promoted under
recommendation of some God father or recruited directly from campus) is posted
as Branch head and then he has to manage much more senior and talented officers
who have either been rejected in promotion process or who willfully boycotted promotion
process because they did not have backing of any top executive or ministers.
It is a
hard nut to crack when a less experienced officer is entrusted the duties of managing
senior old people. Similarly senior and old people finds humiliated when he or
she to work under a boss who is a person to whom he or she taught principles of
banking or to who was nourished under his guidance.
This is
only in public sector banks where officers are allowed to exercise option for
taking part in promotion processes. It means a man has the option to shoulder
higher responsibility or not. It means if a good officer does not want to
should higher responsibility he can be permitted to do so. Higher management
has created terror in the minds of good officers that on promotion he or she
may be transferred from one corner to other corner of the country if he or she
did not flatter to boss or if he or she could not follow the wrongful orders as
a disciplined soldier. This is also a cause why good officers particularly in
old age when he or she to shoulder the responsibilities of family ignore
promotion.
In
private sector banks a person with ten to fifteen years of banking experience
is given the responsibility of a branch and under him a team of at least 10 to
15 younger persons are posted who devoted work as per guidance of branch head.
You will never find in private banks that the branch head or senior officers
are counting cash and frontline newly recruited young boys and girls are
sitting idle. A job which can be done by an inexperienced low paid employee is
never entrusted to high wage paid senior officer and neither such circumstances
ever arises when high paid officers is constrained to perform the duties of cashier.
On the
contrary in public sector banks most of big or small branches have been
provided with too little number of employees that senior officers are left with
no alternative than to work as frontline clerks to maintain good customer service.
New branches in PS banks are opened with one or two manpower whereas branches
opened by private sector banks are manned by at least 10 to 15 energetic youth,
either for marketing or for performing counter work.
In this
way private sector banks attract more business with high number of low paid
employees but PS bank branches fail to attract good business with the help of
old and frustrated lot of frontline workers either as clerk or as officer. Such
type of mismanagement, such type of bad execution of good HR policies and such
type of ill treatment with old and senior people occurs only in PS banks.
Mismanagement
of human resource has been without any control continuing in public sector banks
for last two to three decades. Regulator of banks has remained more or less
silent spectator of ismanagement of Human resources. This is why corrupt
officers who spoilt the bank during their tenure as Branch head or Regional
head or Bank head got safe exit from the bank even though he or she caused loss
to the tune of hundred of crores of rupees to the bank.
It is only in public sector banks that officers are recruited as Marketing Officers are assigned the work of general banking and officers from general banking side are asked to go for market a product.Similarly officers recruited as Agriculture Officers or Field Officers or Rural Development Officer or Technical Officer are asked to work on counter and vice versa.This results in erosion in work both qualitatively and quantitatively.
It will not be an exaggeration to conclude that top executive of government banks has caused huge loss say in hundred of crores of rupees by assigning the work of clerks to officers only to fulfill their malicious intention. Because it is only officers who willingly or unwillingly say "Yes Sir " ;Sir' 'zee sir' on all orders of boss and act upon it whereas clerks seldom follow irreasonable and improper orders of the bosses.Clerical staff used to build pressure on top management and sometimes pose IR problems which put hindrance on the path of corrupt executives indulged in earning bribe and costly gifts. As such banks promoted almost all clerks to officers and stopped fresh recruitment in clerical cadre despite the fact that such action will in long run multiply staff wage bill and finally adversely affect the profitability of the bank.
Other Reasons which contributed in increase of Average pay per employee in public sector bank compared to that in private banks are as follows.
It is only in public sector banks that officers are recruited as Marketing Officers are assigned the work of general banking and officers from general banking side are asked to go for market a product.Similarly officers recruited as Agriculture Officers or Field Officers or Rural Development Officer or Technical Officer are asked to work on counter and vice versa.This results in erosion in work both qualitatively and quantitatively.
It will not be an exaggeration to conclude that top executive of government banks has caused huge loss say in hundred of crores of rupees by assigning the work of clerks to officers only to fulfill their malicious intention. Because it is only officers who willingly or unwillingly say "Yes Sir " ;Sir' 'zee sir' on all orders of boss and act upon it whereas clerks seldom follow irreasonable and improper orders of the bosses.Clerical staff used to build pressure on top management and sometimes pose IR problems which put hindrance on the path of corrupt executives indulged in earning bribe and costly gifts. As such banks promoted almost all clerks to officers and stopped fresh recruitment in clerical cadre despite the fact that such action will in long run multiply staff wage bill and finally adversely affect the profitability of the bank.
Other Reasons which contributed in increase of Average pay per employee in public sector bank compared to that in private banks are as follows.
This again refers to a comparatively study published in newspaper and comments made by Dy Governor RBI Mr. K C Chakravorty who said that average pay of bank employee in public sector banks is 150% of that in private sector banks. Public sector banks are required to perform all types of non productive work such as payment of pension, old age pension, MANREGA payment, teacher salary payment, tax collection etc which private sector banks are not doing.
It is PS banks which have to shoulder the responsibility of target for Financial Inclusion fixed by the government.
They have to open branches in remote villages where possibility of earning profit is very rare. Number of branches as such in public sector is far more than that in private sector. And the bitter truth is that majority of branches opened in rural areas are loss making and they spend their time mostly in unproductive work imposed by state or central government.
It is PS banks which have to oblige various politicians on sanction of loans and then on write off of loans. Banks have to lend under priority sector, under PMEGP programme, under SHG etc which private sector banks are not required to do.
Similarly PS banks have to lend for agriculture development, distribute UGC and taken part on all KVC projects recommended by District Industry centers. Such types of loan more often than not become bad in a year or two and then banks has to sacrifice huge money to keep their Balance sheet attractive.
On the contrary ,Private Banks do not perform and do not undertake such work which are economically not beneficial. Political loaning and political write off of loan takes place only in public sector banks, not in private banks.
On the contrary ,Private Banks do not perform and do not undertake such work which are economically not beneficial. Political loaning and political write off of loan takes place only in public sector banks, not in private banks.
As such there is no comparison between private and public sector banks. Hence effort of Dy governor Mr. Chakravorty to demoralize the employees of public sector banks and deprive them of wage hike is not justified.
Private Banks are employing 80% of their workforce at pay less than Rs10000.00 per months and only 20% of workforce get higher pay package. These banks cannot retain the employee for longer period and therefore attrition rate is much in private banks.
Public sector banks have to follow uniform wage structure as prevalent in government departments and other public sector undertakings.
To add fuel to fire public sector banks did not make any employment or made negligible recruitment since 1991 due to which average age of bank employee in PS banks is more than 45 whereas the average age in private banks is less than 30, Due to this private banks has very less load of terminal benefits payable to retiring employees ( because employees in private banks seldom retire, they resign much before ) whereas it is more in PS banks
Public sector banks have to follow uniform wage structure as prevalent in government departments and other public sector undertakings.
To add fuel to fire public sector banks did not make any employment or made negligible recruitment since 1991 due to which average age of bank employee in PS banks is more than 45 whereas the average age in private banks is less than 30, Due to this private banks has very less load of terminal benefits payable to retiring employees ( because employees in private banks seldom retire, they resign much before ) whereas it is more in PS banks
Why RBI Dy Governor does not compare the wage structure of pay package of central government employee with that of government banks?
Why he does not compare the pay package and productivity of PSUs with that of private corporate houses?
Why RBI Dy Governor does not compare the pay package of Indian railways, Indian airlines, BSNL where productivity and profitability is negligible with their counterpart in private sector (excl railways)?
Why BSNL, Railways, Airlines run in loss despite the fact that enjoy all privileges.
If MOF or RBI is still of the view that average pay of bank employees in PS banks should be reduced to some extent. I have a suggestion as given below to put before them for consideration.
It is true that due to almost non recruitment of fresh officers or fresh clerical staff during last two to three decades , average age of bank employees in many banks have gone upto 45 to 55 whereas in private banks the average age is still 20 to 25 in junior scale and 30 to 35 in higher scale.
If Public sector banks still wants that their average pay to become equal or less than their peer banks in private sector , they should come out with a Volutary Retirement Scheme (VRS) as they did in the year 2002 to kick out senior officers. By such action many incompetent officers whom bank management feel surplus and non effective for higher post may be shown the exit door and in their place fresh officers may be recruited paying much lesser salary. This will help in reducing average pay of bank employee in PS bank
In the reformation era, when full liberty was given to bank management , they almost stopped recruitment of clerks and cashiers .In the name of peaceful IR relation , management of banks chose to recruit officer directly from market. They did not hesitate to recruit officer in higher scale too by paying higher pay on joining itself.
Such unhealthy practices did not lead to corrupt practice only but also resulted in increase in average pay in public sector banks.
During pre-reformation era ,Pay package of clerks used to be almost half of that of officers recruited in scale I. Obviously bank had to pay more for doing same job which a clerk or cashier used to perform.To add fuel to fire bank recruited officers directly in scale II and III and onward which further added to wage burden.
Further bank management allotted work of clerk and cashier to senior officers and juniors and inexperienced officers directly recruited in higher scales were elevated to higher post and higher scale which not only further aggravated the illness of bank but also led to increase in bad assets and which annoyed seniors who served devoted banks for decades .
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RBI for overhaul of banks' HR practices |
K C Chakrabarty questions wisdom in hiring from top B-schools |
BS Reporter / Mumbai Jun 06, 2012, 00:52 IST
The Reserve Bank of India (RBI) has called for a complete overhaul of human resource practices at banks, especially public sector ones where several staffers are due to retire in seven to eight years.
K C Chakrabarty, one of the central bank’s deputy governors, says this sort of increasing intervention in the affairs of public sector banks was needed due to lack of management capacities at the latter.
Earlier, PSBs had expressed discomfort at increasing interference from above in day-to-day operations on credit sanctioning, loan pricing, and human resource (HR) issues. The Union finance ministry had recently asked all banks to follow a uniform practice on promotion and recruitment.
At a HR summit of PSBs, Chakrabarty said: “Why are the promoters and owners being made to take a keen interest in your routine affairs? Efficient and effective HR systems are the key here. In my opinion, this may be due to something lacking in the management capacity of the banks.”
The deputy governor made these comments at an event on Saturday. A copy of the speech was put up on the RBI website on Tuesday. Saying this would be a “retirement decade” for PSBs, as tens of thousands were set to retire by 2020, he said this would be the best time to transform HR processes and implement some new-age concepts.
Indicating there was no proper mechanism of performance management in PSBs, Chakrabarty said the results of not having one could be disastrous.
“We are all having to deal with the problem of people who are ‘promotable’ but not ‘postable’ and people who are ‘postable’ but not getting promoted. This is because we have failed to discriminate between performers and non-performers,” Chakrabarty said.
He called on the senior management of banks and the board to spend more time on performance management. There is a need for complete job description and clear delineation of job roles of chairman and managing directors, and executive directors, he added.
|
Staff costs higher at public sector banks
Staff costs higher at public sector banks
MUMBAI, JUNE 6:
The average public sector bank employee is better off than his private sector counterpart. Staff cost per employee in a public sector bank is 150 per cent higher than similar costs in private banks. According to the data provided by the RBI, costs per employee in a public sector bank in 2010-11 were at Rs 7.15 lakh wheras it was Rs 5.63 lakh for a private sector.
In a speech delivered recently at a conference of public sector HR managers, the RBI Deputy Governor Dr K.C.Chakraborty, said, "One thing is, thus, loud and clear – the competitive advantage in terms of staff costs that we always thought the Public Sector Banks had is no longer there. The absence of the cost advantage coupled with the problem of lower productivity, underscore the critical need for urgent HR transformation in Public Sector Banks."
He also mentioned that per employee expenses in a public sector bank were higher despite their pension expenses not being full reflected. Calling for immediate attention to the problem, he said, HR transformation would determine their ability to compete.
Friday, June 8, 2012
Guidelines Issued TO Public Sector Banks BY RBI on HR Policies
(Following Article is collected from RBI website and this reflects the views expressed by RBI DY Governor in a conference attended by Chief Executive Officer of Public Sector Bank?)
Shri Alok Misra, CMD, Bank of India, Dr. K. Ramakrishnan, Chief Executive, Indian Banks Association, CMDs and EDs of Public Sector Banks, fellow bankers, external consultants, members of the press and distinguished guests. I thank you for inviting me to this conference.
2. I am happy to note that a conference focusing exclusively on HR issues is being organized by Public Sector Banks. I understand that the conference is being organized at the instance of the Government of India, who are the promoters/ owners of the Public Sector Banks. It is good to see the promoters/ owners taking a keen interest in the human resource issues of the promoted companies. Of late, a general trend of promoters/ owners taking keen interest in normal routine operations of banks is being observed, which needs careful analysis.
3. Let us have a look. Why are the promoters/owners being made to take a keen interest in your routine affairs? Efficient and effective HR systems are the key here. In my opinion, this may be due to something lacking in the management capacity of the banks. Hence, we need to upgrade our HR capacity development process to enhance management capacity of banks, to avoid such needs on a recurring basis. If the banks’ HR practices are augmented and optimized, may be through such conferences, there will be an overall improvement in efficient management of banks, which would preempt the need for the promoter/ owner getting involved in normal issues. I would, therefore, like to congratulate the Department of Financial Services, Government of India for prompting banks to take this long pending initiative.
I would structure my talk today into three broad segments where I would be discussing the importance of human resource management for banks, some of the key challenges facing HR managers in Public Sector Banks, including probable solutions, and why now is the right time to focus on HR issues.
Why human resource management is important for Banks
4. Human Resource Management is important for banks because banking is a service industry. Management of people and management of risk are two key challenges facing banks. How you manage the people and how you manage the risks determines your success in the banking business. Efficient risk management may not be possible without efficient and skilled manpower. Banking has been and will always be a "People Business". Though pricing is important, there may be other valid reasons why people select and stay with a particular bank. Banks must try to distinguish themselves by creating their own niches or images, especially in transparent situations with a high level of competitiveness. In coming times, the very survival of the banks would depend on customer satisfaction. Those who do not meet the customer expectations will find survival difficult. Banks must articulate and emphasize the core values to attract and retain certain customer segments. Values such as "sound", "reliable", "innovative", "international", "close", "socially responsible", "Indian", etc. need to be emphasized through concrete actions on the ground and it would be the bank’s human resource that would deliver this.
5. It is a common complaint among bank executives that skilled manpower is in short supply. No two arguments on this, HR resources are becoming scarce – both in quality and quantity. And, it is quite elementary that any resource that is in short supply needs to be properly managed for the benefit of society and, therefore, you need to pay attention to the entire Human Resource Management process. What do I mean when I say this? You need to manage the people – and for this you need to discriminate between the people, I mean positive discrimination. The entire spectrum of HR practice requires revolutionary changes if the banks have to survive. Managing the people is the key challenge. And, in my opinion, discrimination is the key word when dealing with people. You will notice that I will use this word very frequently during my discussion.
How to Manage Human Resources
6. I would like to highlight the following key challenges faced in HR management in any organization and which is all the more relevant for public sector banks today:
(a) Planning
(b) Acquiring the right people
(c) Retaining/ Developing the people
(d) Managing people separation / exit
I would attempt at sharing my thoughts on each of the above areas:
(a) Planning
7. As the economy grows at a steady rate of around 7-8%, incomes rise and demographic dividends start accruing, the Banking industry is expected to take a quantum leap forward. But this growth will need a large number of people and considering that there are retirements in lakhs, a defining moment is being presented before the Nationalized Banks to transform. Are the banks ready to handle the new bunch of employees who will be culturally so different from their predecessors of the post nationalization era? It all begins with having a manpower plan. How many banks can claim to have a proper manpower plan that captures the type of people it requires, the level at which they are required, clearly defined roles for everyone, etc. Manpower plans should follow a lifecycle approach, that is, from the time of recruitment of an employee to his retirement. Further, this needs to be integrated with the Business Plan and strategy of the bank. Are we having a Business Strategy or Business Plan needs to be addressed first.
8. While planning your people requirement it is very important for you to develop your “employer brand”, that is, your reputation as an employer to attract, engage and retain talented candidates and employees. Banks will have to plan for the following:
A steady, carefully calibrated recruitment programme,
As rapid technological changes transform business – continuous skill up-gradation.
A new generation of the workforce will be working alongside an older generation as a team. Banking, in my opinion is a team work and this new situation will require cultural adjustments and therefore, change management
(b) Acquiring the right people:
9. What kind of talent is required by the banks? Discrimination is the key. Do we need good people? Or do we need suitable people? I think we require good but suitable people. Is the mad rush to top campuses justified? Will the people recruited from top management institutes understand the Financial Inclusion drive? Will these people have empathy towards poorest of the poor? I have often heard bank heads talking about the challenge of finding people keen to work in rural areas. Does it not indicate that there is something amiss in the way we recruit people? Is it not better to recruit people from smaller cities?
10. How do we get to acquiring people with the right kind of talent? Unfortunately, it is the same limited talent pool that will be targeted by Banks, Financial Institutions, Insurance, Telecom and other industries which are on fast growth track and in need of talented manpower. While my friends in the Banking Industry are busy developing “on-line” application forms and “on-line” tests, we need to probably question if we are even targeting the right kind of talent pool. I would like to have a study on how many people in remote villages, at the taluka / tehsil level, appear for the recruitment tests that are conducted. Because, these might be the people who could be best suited to drive our financial inclusion agenda. While we are busy testing the people for problem solving skills on paper, Professor Debashis Chatterjee, Director of IIM Kozhikode says that these do not necessarily mean problem solving skills on the ground. Our recruitment tests do not focus on testing the psychological abilities of candidates to ensure that only the ones with right attitude towards the job are selected. This is why we often end up with people having brilliant minds but incapable of actually delivering on the tasks assigned.
11. Banks need to seriously look at lateral recruitment as an option to induct specialists at various levels with specific skill sets and experience pool. While we have often heard of people leaving banks to join finance, legal, accounting firms, etc. seldom have we heard of people leaving these professions to join banks. This, I think, needs to change.
The right people will come only if they are paid competitive salaries. However, too much pay also involves moral hazard issues and invites adverse attention of external stakeholders. As we will see later, the salary structure in the PSBs appears to be distorted. There has to be discrimination in salaries of people.
(c) Retaining/ Developing the People:
12. We may be able to get the most suited people for our work but then the challenge is to retain these people and to develop them. There are several dimensions to this issue such as training/ re-skilling of employees, performance measurement, promotion policy, transfer policy, talent management, communication, etc. I would like to briefly dwell on some of these issues:
13. Training/ Re-skilling: The nature of business requires massive re-skilling of the existing workforce and continuous skill up-gradation. Khandelwal Committee has recommended major up-gradation of in-house training facilities of banks. I tend to have a different view. With a lot of service providers in the market, should we not majorly utilize their services? In-house training facilities should be used for courseware development on IT / electronic platforms. The courseware should facilitate skill development. Again, there will have to be discrimination in the training that each employee has to be provided - based on his /her requirements and the need of the institution, not as a routine, not as a measure of reward alone.
14. It is also important here to understand why people work? In the olden times, in agrarian societies, people worked for livelihood. Times changed and came the industrial age. Livelihood was not the only reason of working. As Henry Ford famously said “Why is it every time I ask for a pair of hands, they come with a brain attached?” The people then understood that apart from livelihood, there is something else required. This something else was termed ‘Job Satisfaction’. We have moved on further and are now in the ‘Knowledge Age’ and in this age, in my opinion, people work for ‘Empowerment’ more than anything else. I will touch upon other requirements of managing in Knowledge Age a bit later.
15. The best development of people is through empowerment. People at all levels in the organization must feel empowered. For this, we need to cut layers of bureaucracy that we have created over the years and adopt an effective way to delegate. We have made some beginning in this direction in the RBI.
16. Performance Management: This is the most important area of Human Resource Management, the foundation of which is discrimination. Unfortunately, current systems are unable to discriminate and differentiate between performers and non-performers. In fact, it is impossible to identify who are the performers and who are the non-performers. I don’t know if any one of you has even attempted to identify who are, say, the bottom 25% people in your organization. In any organization typically there would be some 10-15% of people who would be the high performers. HR managers often focus on this segment and try to cater to their needs first. Instead, I feel that focus should be on the remaining 85% as any improvement in their performance would have a significant impact on the organization’s performance. With all the efforts a student who always scores above 90% marks in his class, will benefit by only a few percentage. The one who scores only 45%, however, has the potential of doubling his marks.
17. The results of not having a proper performance management system are disastrous. We are all having to deal with the problem of people who are “promotable” but not “postable” and people who are “postable” but not getting promoted. This is because we have failed to discriminate between performers and non-performers. HR systems may have failed to appreciate performers. In fact, we have not even tried to define what performance is in a given job. Despite this, what is the kind of time we are spending on Performance Management? What is the kind of attention that the Boards, CMDs and EDs give to this? To begin with, job roles and job descriptions need to undergo a major overhaul. In fact, even at the level of CMDs/ EDs there is a need for complete job description and clear delineation of job roles of CMDs and EDs. We need to define “performance” appropriately in the context of banking services today for all levels of functionaries.
18. A fair, transparent and objective mechanism for performance management is a must for all banks because an effective Performance Management System is the key to talent management and succession planning. In RBI we are shortly going to introduce a new Performance Management System that will work on goal setting, potential appraisal of performers and developing a talent pipeline.
19. We are also going to face major challenges on the Talent Management front. In coming times, the work force will get complex and there will be a need to juggle a wide variety of people with varied needs and preferences, resulting in an array of relationships between the organization and those who work for it. Peter Drucker had, more than a decade ago, expressed the need for what he called “non-traditional” work relations: flexible schedules, contract arrangements, virtual teams, etc.
20. Managing in the knowledge era: We are living in the knowledge age where our existing management theories, which are oriented towards being more productive in the industrial society and the ethics around it, will need to undergo a 360 degree change. As I mentioned earlier, the key driver that motivates people in the knowledge era is not livelihood or job satisfaction but is the feeling of empowerment. When we talk of talent management today, it is about managing knowledge workers and there are some prerequisites for it:
They cannot be treated as subordinates, but as associates
They cannot be managed, but led
They will work flexi-time and flexi-place but would need a ‘home base’
Above all, they cannot be purchased or bribed, they have to be empowered.
The new generation, in the age of knowledge workers, is going to be different. We need to rewrite our employment contracts. There should be a variety of people working with us on variety of options – part time / contractual / regular – regular in regular job / regular on flexi-hours, etc.
21. A Performance Management System should throw up future leaders. This sounds very simple but we must know what we expect from these leaders. What is expected of a leader?
22. A leader is expected to do three things:
(i) Plan (the tasks)
(ii) Inspire (people)
Inspire for aspiring
Inspire for perspiring
And;
(iii) Deliver (on results).
A leader is no leader if he / she cannot deliver.
23. Systems/ Processes: The hallmark of any effective HR system/ process is that it should be objective and transparent. These traits are essential for the manpower to repose trust in the organization’s systems/ processes. No HR function can be effective if it does not enjoy the trust and confidence of its constituents.
24. Two key stakeholders in the HR management process are Board/ Senior Management and Unions. How much time do Board members spend on HR related issues? Perhaps, not enough. Structurally, it is important that Board/ senior management is actively involved in HR matters involving all its manifestations. Organized employee unions are an important part of the democratic process and form an effective channel for communicating with employees down the line. It is important to involve them in the HR process without allowing them to have an overbearing influence.
25. Communication: Communication with employees is a vital part of the HR process as it helps enhance transparency in HR practices, thereby imparting credibility to them. When dealing with human beings, it is important to be objective, transparent and non-discriminatory and this must be effectively communicated. The employee must say that the management has all the above qualities. The Board must spend time on devising ways and means for this communication – lay down appropriate structures for the purpose. All forms of modern communication channels including intranet, corporate e mails, etc. can be adopted to reach out to employees.
However, despite these developments, the traditional channel of communicating through unions continues to be relevant as employees attribute greater credibility and reliability to messages received through their unions. The Banks have a clear cut advantage in this respect – they already have a participative process. Representatives of the employees sit on the Board itself and hence, it requires better practice of participative management in the real sense of the term.
(d) Managing people separation / exit:
26. Except maybe a last few years, so far most of the people leaving us were due to retirements. Things will change, unless we are doing all the other things that I spoke out earlier, properly, people will also leave us for other opportunities – and believe me, there are going to be plenty of them – not only from competitor banks and financial sector but also from outside the financial sector.
27. We need to introduce a system of exit interviews to determine why people are leaving our organization – whether there are any inherent system/ structure failures? Have we not been able to empower the people enough? We should not try to block their exit but, as a part of the manpower planning process, should be able to identify substitutes who can step in and ensure non-disruption of important functions, in the event of the exit of a key person. The place of an experienced person could always be filled in through lateral recruitment of a person with matching skills/ experience.
28. While we are facing a crunch of manpower – can we use our retired people in some way – we are paying them pension and reasonable medical benefits already – can some contracts not be worked out for them? Again, can we not provide some empowerment to them to leverage on their inherent loyalty? They could be useful in brand building efforts, or perhaps, in our financial inclusion initiatives. It is, definitely, an avenue that could be explored.
Is it the right time?
29. Definitely yes. Believe me, the time is now! In fact, we are already behind the clock. During the 2010 to 2020 decade, Nationalized Banks are at the cusp of a unique opportunity – with people retiring in lakhs making it a ‘retirement decade’, it is the best time to transform the HR processes and implement some new age concepts. This kind of opportunity to transform HR processes is once-in-a-lifetime window which, if properly utilized, could help our banks take giant strides. On the other hand, those who miss the bus would lag behind. The kind of HR changes required are a tremendous challenge and opportunity at the same time. We need some fresh ideas to make the banks ‘future - ready’. This Conference would, I believe, throw up many such ideas.
30. In the beginning, I alluded to the promoters – Government - taking a keen interest in the Banks. Why has this situation arisen? Let me present some data on staff expenses of various bank groups:
The above table suggests that Public Sector Banks are no longer the major employment provider in the financial market and also that their per employee expenses have gone above that of Private Sector Banks. The staff strength of Public Sector Banks have gone down between 1998-99 and 2010-11 but that of Private Sector Banks have gone up significantly. The per employee expenses of Public Sector Banks have gone above that of Private Sector Banks and today, is more than 150% higher than that of Private Sector Banks. This is despite the fact that pension expenses of PSU Banks are not fully reflected in their staff expenses. One thing is, thus, loud and clear – the competitive advantage in terms of staff costs that we always thought the Public Sector Banks had is no longer there. The absence of the cost advantage coupled with the problem of lower productivity underscore the critical need for urgent HR transformation in Public Sector Banks. Hence, time has come for us to pay attention to this critical aspect on which our ability to compete finally hinges on. We can no longer postpone this issue.
Conclusion
31. The public sector banking system in India is standing at an important cross road. There are critical choices to be made and initiatives to be taken. The time is ripe for leaving the old baggage and taking bold measures. These measures would determine the future path of public sector banks and whether they would continue to retain their position of preeminence in the banking space or would they yield to the pressure from their peers in the private sector. Considering the importance that banks have in the nation building process, the choices made now could have a bearing on the economic future of the country and on the lives of crores of our fellow countrymen, many of whom are yet to be touched by the formal financial system. We must succeed. Not only for ourselves but also for the society and for the nation.
I hope that some of the issues raised by me here today are dwelled upon during the course of this Conference and concrete action plans emerge to tackle the HR challenges facing our banks. I wish the Conference all success.
Thank you.
Shri Alok Misra, CMD, Bank of India, Dr. K. Ramakrishnan, Chief Executive, Indian Banks Association, CMDs and EDs of Public Sector Banks, fellow bankers, external consultants, members of the press and distinguished guests. I thank you for inviting me to this conference.
2. I am happy to note that a conference focusing exclusively on HR issues is being organized by Public Sector Banks. I understand that the conference is being organized at the instance of the Government of India, who are the promoters/ owners of the Public Sector Banks. It is good to see the promoters/ owners taking a keen interest in the human resource issues of the promoted companies. Of late, a general trend of promoters/ owners taking keen interest in normal routine operations of banks is being observed, which needs careful analysis.
3. Let us have a look. Why are the promoters/owners being made to take a keen interest in your routine affairs? Efficient and effective HR systems are the key here. In my opinion, this may be due to something lacking in the management capacity of the banks. Hence, we need to upgrade our HR capacity development process to enhance management capacity of banks, to avoid such needs on a recurring basis. If the banks’ HR practices are augmented and optimized, may be through such conferences, there will be an overall improvement in efficient management of banks, which would preempt the need for the promoter/ owner getting involved in normal issues. I would, therefore, like to congratulate the Department of Financial Services, Government of India for prompting banks to take this long pending initiative.
I would structure my talk today into three broad segments where I would be discussing the importance of human resource management for banks, some of the key challenges facing HR managers in Public Sector Banks, including probable solutions, and why now is the right time to focus on HR issues.
Why human resource management is important for Banks
4. Human Resource Management is important for banks because banking is a service industry. Management of people and management of risk are two key challenges facing banks. How you manage the people and how you manage the risks determines your success in the banking business. Efficient risk management may not be possible without efficient and skilled manpower. Banking has been and will always be a "People Business". Though pricing is important, there may be other valid reasons why people select and stay with a particular bank. Banks must try to distinguish themselves by creating their own niches or images, especially in transparent situations with a high level of competitiveness. In coming times, the very survival of the banks would depend on customer satisfaction. Those who do not meet the customer expectations will find survival difficult. Banks must articulate and emphasize the core values to attract and retain certain customer segments. Values such as "sound", "reliable", "innovative", "international", "close", "socially responsible", "Indian", etc. need to be emphasized through concrete actions on the ground and it would be the bank’s human resource that would deliver this.
5. It is a common complaint among bank executives that skilled manpower is in short supply. No two arguments on this, HR resources are becoming scarce – both in quality and quantity. And, it is quite elementary that any resource that is in short supply needs to be properly managed for the benefit of society and, therefore, you need to pay attention to the entire Human Resource Management process. What do I mean when I say this? You need to manage the people – and for this you need to discriminate between the people, I mean positive discrimination. The entire spectrum of HR practice requires revolutionary changes if the banks have to survive. Managing the people is the key challenge. And, in my opinion, discrimination is the key word when dealing with people. You will notice that I will use this word very frequently during my discussion.
How to Manage Human Resources
6. I would like to highlight the following key challenges faced in HR management in any organization and which is all the more relevant for public sector banks today:
(a) Planning
(b) Acquiring the right people
(c) Retaining/ Developing the people
(d) Managing people separation / exit
I would attempt at sharing my thoughts on each of the above areas:
(a) Planning
7. As the economy grows at a steady rate of around 7-8%, incomes rise and demographic dividends start accruing, the Banking industry is expected to take a quantum leap forward. But this growth will need a large number of people and considering that there are retirements in lakhs, a defining moment is being presented before the Nationalized Banks to transform. Are the banks ready to handle the new bunch of employees who will be culturally so different from their predecessors of the post nationalization era? It all begins with having a manpower plan. How many banks can claim to have a proper manpower plan that captures the type of people it requires, the level at which they are required, clearly defined roles for everyone, etc. Manpower plans should follow a lifecycle approach, that is, from the time of recruitment of an employee to his retirement. Further, this needs to be integrated with the Business Plan and strategy of the bank. Are we having a Business Strategy or Business Plan needs to be addressed first.
8. While planning your people requirement it is very important for you to develop your “employer brand”, that is, your reputation as an employer to attract, engage and retain talented candidates and employees. Banks will have to plan for the following:
A steady, carefully calibrated recruitment programme,
As rapid technological changes transform business – continuous skill up-gradation.
A new generation of the workforce will be working alongside an older generation as a team. Banking, in my opinion is a team work and this new situation will require cultural adjustments and therefore, change management
(b) Acquiring the right people:
9. What kind of talent is required by the banks? Discrimination is the key. Do we need good people? Or do we need suitable people? I think we require good but suitable people. Is the mad rush to top campuses justified? Will the people recruited from top management institutes understand the Financial Inclusion drive? Will these people have empathy towards poorest of the poor? I have often heard bank heads talking about the challenge of finding people keen to work in rural areas. Does it not indicate that there is something amiss in the way we recruit people? Is it not better to recruit people from smaller cities?
10. How do we get to acquiring people with the right kind of talent? Unfortunately, it is the same limited talent pool that will be targeted by Banks, Financial Institutions, Insurance, Telecom and other industries which are on fast growth track and in need of talented manpower. While my friends in the Banking Industry are busy developing “on-line” application forms and “on-line” tests, we need to probably question if we are even targeting the right kind of talent pool. I would like to have a study on how many people in remote villages, at the taluka / tehsil level, appear for the recruitment tests that are conducted. Because, these might be the people who could be best suited to drive our financial inclusion agenda. While we are busy testing the people for problem solving skills on paper, Professor Debashis Chatterjee, Director of IIM Kozhikode says that these do not necessarily mean problem solving skills on the ground. Our recruitment tests do not focus on testing the psychological abilities of candidates to ensure that only the ones with right attitude towards the job are selected. This is why we often end up with people having brilliant minds but incapable of actually delivering on the tasks assigned.
11. Banks need to seriously look at lateral recruitment as an option to induct specialists at various levels with specific skill sets and experience pool. While we have often heard of people leaving banks to join finance, legal, accounting firms, etc. seldom have we heard of people leaving these professions to join banks. This, I think, needs to change.
The right people will come only if they are paid competitive salaries. However, too much pay also involves moral hazard issues and invites adverse attention of external stakeholders. As we will see later, the salary structure in the PSBs appears to be distorted. There has to be discrimination in salaries of people.
(c) Retaining/ Developing the People:
12. We may be able to get the most suited people for our work but then the challenge is to retain these people and to develop them. There are several dimensions to this issue such as training/ re-skilling of employees, performance measurement, promotion policy, transfer policy, talent management, communication, etc. I would like to briefly dwell on some of these issues:
13. Training/ Re-skilling: The nature of business requires massive re-skilling of the existing workforce and continuous skill up-gradation. Khandelwal Committee has recommended major up-gradation of in-house training facilities of banks. I tend to have a different view. With a lot of service providers in the market, should we not majorly utilize their services? In-house training facilities should be used for courseware development on IT / electronic platforms. The courseware should facilitate skill development. Again, there will have to be discrimination in the training that each employee has to be provided - based on his /her requirements and the need of the institution, not as a routine, not as a measure of reward alone.
14. It is also important here to understand why people work? In the olden times, in agrarian societies, people worked for livelihood. Times changed and came the industrial age. Livelihood was not the only reason of working. As Henry Ford famously said “Why is it every time I ask for a pair of hands, they come with a brain attached?” The people then understood that apart from livelihood, there is something else required. This something else was termed ‘Job Satisfaction’. We have moved on further and are now in the ‘Knowledge Age’ and in this age, in my opinion, people work for ‘Empowerment’ more than anything else. I will touch upon other requirements of managing in Knowledge Age a bit later.
15. The best development of people is through empowerment. People at all levels in the organization must feel empowered. For this, we need to cut layers of bureaucracy that we have created over the years and adopt an effective way to delegate. We have made some beginning in this direction in the RBI.
16. Performance Management: This is the most important area of Human Resource Management, the foundation of which is discrimination. Unfortunately, current systems are unable to discriminate and differentiate between performers and non-performers. In fact, it is impossible to identify who are the performers and who are the non-performers. I don’t know if any one of you has even attempted to identify who are, say, the bottom 25% people in your organization. In any organization typically there would be some 10-15% of people who would be the high performers. HR managers often focus on this segment and try to cater to their needs first. Instead, I feel that focus should be on the remaining 85% as any improvement in their performance would have a significant impact on the organization’s performance. With all the efforts a student who always scores above 90% marks in his class, will benefit by only a few percentage. The one who scores only 45%, however, has the potential of doubling his marks.
17. The results of not having a proper performance management system are disastrous. We are all having to deal with the problem of people who are “promotable” but not “postable” and people who are “postable” but not getting promoted. This is because we have failed to discriminate between performers and non-performers. HR systems may have failed to appreciate performers. In fact, we have not even tried to define what performance is in a given job. Despite this, what is the kind of time we are spending on Performance Management? What is the kind of attention that the Boards, CMDs and EDs give to this? To begin with, job roles and job descriptions need to undergo a major overhaul. In fact, even at the level of CMDs/ EDs there is a need for complete job description and clear delineation of job roles of CMDs and EDs. We need to define “performance” appropriately in the context of banking services today for all levels of functionaries.
18. A fair, transparent and objective mechanism for performance management is a must for all banks because an effective Performance Management System is the key to talent management and succession planning. In RBI we are shortly going to introduce a new Performance Management System that will work on goal setting, potential appraisal of performers and developing a talent pipeline.
19. We are also going to face major challenges on the Talent Management front. In coming times, the work force will get complex and there will be a need to juggle a wide variety of people with varied needs and preferences, resulting in an array of relationships between the organization and those who work for it. Peter Drucker had, more than a decade ago, expressed the need for what he called “non-traditional” work relations: flexible schedules, contract arrangements, virtual teams, etc.
20. Managing in the knowledge era: We are living in the knowledge age where our existing management theories, which are oriented towards being more productive in the industrial society and the ethics around it, will need to undergo a 360 degree change. As I mentioned earlier, the key driver that motivates people in the knowledge era is not livelihood or job satisfaction but is the feeling of empowerment. When we talk of talent management today, it is about managing knowledge workers and there are some prerequisites for it:
They cannot be treated as subordinates, but as associates
They cannot be managed, but led
They will work flexi-time and flexi-place but would need a ‘home base’
Above all, they cannot be purchased or bribed, they have to be empowered.
The new generation, in the age of knowledge workers, is going to be different. We need to rewrite our employment contracts. There should be a variety of people working with us on variety of options – part time / contractual / regular – regular in regular job / regular on flexi-hours, etc.
21. A Performance Management System should throw up future leaders. This sounds very simple but we must know what we expect from these leaders. What is expected of a leader?
22. A leader is expected to do three things:
(i) Plan (the tasks)
(ii) Inspire (people)
Inspire for aspiring
Inspire for perspiring
And;
(iii) Deliver (on results).
A leader is no leader if he / she cannot deliver.
23. Systems/ Processes: The hallmark of any effective HR system/ process is that it should be objective and transparent. These traits are essential for the manpower to repose trust in the organization’s systems/ processes. No HR function can be effective if it does not enjoy the trust and confidence of its constituents.
24. Two key stakeholders in the HR management process are Board/ Senior Management and Unions. How much time do Board members spend on HR related issues? Perhaps, not enough. Structurally, it is important that Board/ senior management is actively involved in HR matters involving all its manifestations. Organized employee unions are an important part of the democratic process and form an effective channel for communicating with employees down the line. It is important to involve them in the HR process without allowing them to have an overbearing influence.
25. Communication: Communication with employees is a vital part of the HR process as it helps enhance transparency in HR practices, thereby imparting credibility to them. When dealing with human beings, it is important to be objective, transparent and non-discriminatory and this must be effectively communicated. The employee must say that the management has all the above qualities. The Board must spend time on devising ways and means for this communication – lay down appropriate structures for the purpose. All forms of modern communication channels including intranet, corporate e mails, etc. can be adopted to reach out to employees.
However, despite these developments, the traditional channel of communicating through unions continues to be relevant as employees attribute greater credibility and reliability to messages received through their unions. The Banks have a clear cut advantage in this respect – they already have a participative process. Representatives of the employees sit on the Board itself and hence, it requires better practice of participative management in the real sense of the term.
(d) Managing people separation / exit:
26. Except maybe a last few years, so far most of the people leaving us were due to retirements. Things will change, unless we are doing all the other things that I spoke out earlier, properly, people will also leave us for other opportunities – and believe me, there are going to be plenty of them – not only from competitor banks and financial sector but also from outside the financial sector.
27. We need to introduce a system of exit interviews to determine why people are leaving our organization – whether there are any inherent system/ structure failures? Have we not been able to empower the people enough? We should not try to block their exit but, as a part of the manpower planning process, should be able to identify substitutes who can step in and ensure non-disruption of important functions, in the event of the exit of a key person. The place of an experienced person could always be filled in through lateral recruitment of a person with matching skills/ experience.
28. While we are facing a crunch of manpower – can we use our retired people in some way – we are paying them pension and reasonable medical benefits already – can some contracts not be worked out for them? Again, can we not provide some empowerment to them to leverage on their inherent loyalty? They could be useful in brand building efforts, or perhaps, in our financial inclusion initiatives. It is, definitely, an avenue that could be explored.
Is it the right time?
29. Definitely yes. Believe me, the time is now! In fact, we are already behind the clock. During the 2010 to 2020 decade, Nationalized Banks are at the cusp of a unique opportunity – with people retiring in lakhs making it a ‘retirement decade’, it is the best time to transform the HR processes and implement some new age concepts. This kind of opportunity to transform HR processes is once-in-a-lifetime window which, if properly utilized, could help our banks take giant strides. On the other hand, those who miss the bus would lag behind. The kind of HR changes required are a tremendous challenge and opportunity at the same time. We need some fresh ideas to make the banks ‘future - ready’. This Conference would, I believe, throw up many such ideas.
30. In the beginning, I alluded to the promoters – Government - taking a keen interest in the Banks. Why has this situation arisen? Let me present some data on staff expenses of various bank groups:
Table: Staff expenses (Payments to and Provisions for employees) of Public
Sector Banks versus Private Sector Banks
Sector Banks versus Private Sector Banks
Year
|
Public Sector Banks
|
Private Sector Banks
| ||
Staff
|
Cost per employee (Rupees)
|
Staff
|
Cost per employee
(Rupees) | |
1998-99
|
8,83,648
|
1,67,940
|
60,777
|
1,69,307
|
2002-03
|
7,57,251
|
2,70,426
|
59,374
|
3,54,532
|
2003-04
|
7,52,627
|
2,97,903
|
81,120
|
3,17,308
|
2006-07
|
7,28,878
|
3,81,449
|
1,37,284
|
3,83,439
|
2007-08
|
7,15,408
|
4,00,611
|
1,58,823
|
4,47,920
|
2008-09
|
7,31,524
|
4,72,493
|
1,76,339
|
4,83,501
|
2009-10
|
7,39,646
|
5,55,874
|
1,82,520
|
5,16,491
|
2010-11
|
7,57,535
|
7,15,914
|
2,18,679
|
5,63,154
|
The above table suggests that Public Sector Banks are no longer the major employment provider in the financial market and also that their per employee expenses have gone above that of Private Sector Banks. The staff strength of Public Sector Banks have gone down between 1998-99 and 2010-11 but that of Private Sector Banks have gone up significantly. The per employee expenses of Public Sector Banks have gone above that of Private Sector Banks and today, is more than 150% higher than that of Private Sector Banks. This is despite the fact that pension expenses of PSU Banks are not fully reflected in their staff expenses. One thing is, thus, loud and clear – the competitive advantage in terms of staff costs that we always thought the Public Sector Banks had is no longer there. The absence of the cost advantage coupled with the problem of lower productivity underscore the critical need for urgent HR transformation in Public Sector Banks. Hence, time has come for us to pay attention to this critical aspect on which our ability to compete finally hinges on. We can no longer postpone this issue.
Conclusion
31. The public sector banking system in India is standing at an important cross road. There are critical choices to be made and initiatives to be taken. The time is ripe for leaving the old baggage and taking bold measures. These measures would determine the future path of public sector banks and whether they would continue to retain their position of preeminence in the banking space or would they yield to the pressure from their peers in the private sector. Considering the importance that banks have in the nation building process, the choices made now could have a bearing on the economic future of the country and on the lives of crores of our fellow countrymen, many of whom are yet to be touched by the formal financial system. We must succeed. Not only for ourselves but also for the society and for the nation.
I hope that some of the issues raised by me here today are dwelled upon during the course of this Conference and concrete action plans emerge to tackle the HR challenges facing our banks. I wish the Conference all success.
Thank you.
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