Mumbai: State-run banks, which lag behind private sector and foreign rivals when it comes to staff compensation and human resource (HR) policies, may soon get the freedom to raise their standards with the government set to speed up the revamp of personnel management at lenders controlled by it.
The government has accepted most of the recommendations made by a panel headed by former Bank of Baroda chief A.K. Khandelwal on HR policies at public-sector banks (PSBs) last year, according to two persons familiar with the development. They asked not to be named as the information is yet to be made public.
“Once implemented, this will pave way to significant changes in the way employees are treated,” said one of the persons.
State-run banks will be allowed to decide their own wage structure based on individual efficiency and the lender’s overall performance, besides officers getting variable pay and performance-based perks.
The government set up an advisory group under Khandelwal to prepare a 10 year road map for individual state-run banks, according to the person. This committee, which has been asked to complete the process in a year, will also look at the technology and business process reengineering reforms required for different banks.
India has 27 public sector banks, which together account for more than 70% of the country’s banking sector. These banks together employ around 700,000 people. Out of this, more than 100,000 lakh—including 7,736 executives, over 50,000 officers and around 48,000 clerical staff—are scheduled to retire over the next five years.
“Over the next three years, there are going to be a lot of retirements in the upper management of PSBs, especially at the level of assistant manger and above,” said Vaibhav Agarwal, vice president, research, at Angel Broking Ltd. “Nearly 50-60% of the people are expected to retire. Due to the difference in pay scales, getting people from competitors in private and foreign banks will be highly expensive for these banks, hence revamping the current system is critical.”
Besides Khandelwal, the advisory group consists of HR expert T.V. Rao and former Indian Banks Association (IBA) chief executive H.N. Sinor, said the person cited above.
Traditionally, employees in state-run banks are paid less than counterparts in private and foreign banks. The pay scale is currently decided through negotiations between the IBA and unions once in five years. Employees also face delayed promotions and lack of recognition for individual performance, putting state-run banks at a disadvantage in attracting and retaining talent, bankers said.
“The introduction of variable pay can definitely help to improve the performance,” said M. Narendra, chairman and managing director of Indian Overseas Bank. “Reforms are essential also to attract and retain executives for certain specialized jobs.” There can be “some autonomy” for state-run banks in manpower management, he said.
Late last year, Reserve Bank of India (RBI) governor D. Subbarao said there was “good reason” to revisit the current salary structure in view of the attrition at state-run banks.
“The executive compensation in the public sector, as is well known, is lower than that in the private sector,” Subbarao had said.
The move comes as new private sector banks are likely to be set up in the next one year. RBI has issued draft norms for this and is currently in the process of accepting feedback.
The Khandelwal panel, which submitted its report in the middle of 2010, had recommended that stock options be given to the best-performing 15% of staff apart from better remuneration for the chairman and managing director. Other recommendations include the induction of HR specialists, the appointment of an executive director for HR, 50% direct recruitment of officers against 25% now and compulsory three-year rural service for new recruits. Senior officers should be subject to appraisals on the basis of feedback from colleagues, subordinates and customers, the committee said.
It also proposed Maharatna status for State Bank of India (SBI), and Navaratna and Miniratna tags for the other state-owned banks. State-run companies are accorded the status depending on their size and are allowed a greater degree of financial autonomy than those without the ratna tag.
Some time last year, the government had appointed another committee under joint secretary financial services, Alok Nigam, to study the Khandelwal panel report.