Home / Market / Mark-to-market /  Are banks spending enough on employees?

Reserve Bank of India (RBI) governor D. Subbarao says banking is not attracting the best talent. But are banks paying enough to be able to do that?

Leaving aside qualitative factors such as job satisfaction and employee fulfilment, do banks in India pay enough to attract talent?

As with any other industry, it is difficult to get exact wages data for banks, too. The cost of employees could perhaps be used as a proxy. Staff costs per employee for public sector banks have nearly doubled in the past five years. The average staff cost was 8.18 lakh in 2011-12 compared with 4.41 lakh in 2007-08.

There are a couple of caveats here. For public sector banks, these numbers also include pension costs and other expenses. Staff costs in some years are inflated because of payment of arrears from wage revisions. These distortions and mass retirements at state-owned lenders mean that average staff cost at these banks surpassed that of private sector lenders from 2010-11, a conclusion which seems counterintuitive.

But then, consider State Bank of India (SBI) which helpfully gives the break-up of its employee expenses. Shorn of pension and other expenses, salary costs alone jumped by one-fifth in 2011-2012, while overall staff costs gained only 11.6%. That translates into a pay hike of 25% in 2011-12 and explains why the bank received 1.7 million applications for 1,500 entry-level positions recently. The secret: public sector salaries are indexed to inflation.

For private banks, the picture is stark. Staff cost per employee has increased 10% over the past five years. On an average, private banks spent 6.72 lakh per employee in 2011-12 compared with 6.11 lakh in 2007-08.

That is about par with the increase seen in other service sectors such as information technology where average staff costs increased only 6.6% over the five years till 2011-12. The average employee cost in this industry, is however, higher at 11 lakh.

Manufacturing industries such as auto and cement have seen an increase on par with state-owned banks. The former’s average employee costs are also higher than public sector banks. However, there is always the possibility that total employee expenses also include the costs of contract labour. These temporary staff aren’t accounted for at the end-of-the-year headcount and thus an increase in employee expenses may not always translate into a salary gain.

With new banking licences expected to be handed out this year, the search for talent will intensify. It could also lead to higher pay hikes for bankers.

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