Payroll rises in banks on higher salary scales, pension liabilities

Payroll rises in banks on higher salary scales, pension liabilities

Mumbai: In an attempt to retain talent and hire new employees, the new private sector banks are spending huge sums of money.

For instance, Yes Bank Ltd, which posted a 110% rise in its net profit for the quarter ended 30 September, also saw its staff cost go up by 107.9% from the year-ago period. HDFC Bank Ltd’s staff cost rose by 75.9%, while at another private bank, Axis Bank Ltd, staff costs rose 67.7% in the second quarter even as its net profit went up by 60.46%.

S. Bhattacharya, president of human resources for Axis Bank, said the bank’s staff strength in the second quarter increased by 45% year-over-year. The lender also gave an average salary hike of 15-16% to its employees, which contributed to the rising payroll costs. HDFC Bank attributed a 146% increase in its sales force as the primary reason for the cost increase for payroll.

“In September 2006, our total headcount was 18,000 and this grew to 32,000 in September 2007," said Mandeep Maitra, country head of human resources for HDFC Bank. “This was mainly because we included a large external salesforce on our payroll. This has raised our staff cost but pared other operating expenses."

Maitra said the bank gave an average raise of 17% to its employees. HDFC Bank’s net profit during the quarter rose by 40.1%.

ICICI Bank Ltd, the largest private sector lender in India, gave an average salary raise of 10% to employees and saw its payroll expense rise by 32.3% in the second quarter. According to the group human resources head K. Ramkumar, salary increases alone cannot retain staff because with a growing economy, people have more choices. “We don’t play the salary game, it is not sustainable in the long run," Ramkumar said. “We want to develop a conducive atmosphere for our people to work and grow in the organization."

The bank added 5,000 people to its payroll in the second quarter.

Among the public sector banks, which account for about 70% of the Indian banking industry, Bank of Baroda incurred the maximum increase in its staff cost—38.6%. Overall, these banks have incurred only a marginal rise in payroll costs. Bank of India officials said the lender’s payroll costs have gone down by 8.1%.

However, nationalized banks may not be able to escape the rise in staff costs for long because they will have to provide for increased pension liabilities as required by AS15, an accounting norm that mandates that all Indian firms must calculate the retirement benefits of their employees, such as pension, gratuity, provident fund, and leave encashment benefits as per international norms.