Bank frauds and the HR factor in PSU banks
Rejuvenating the enterprise and risk propensity of public sector bankers who have gone into hibernation after the bank frauds and problem loans is essential
One common strand running through the cacophony on the bank frauds making the news is the human resource (HR) failure in implementing measures for “preventive vigilance”. So much so that the central vigilance commissioner has had to step in and order the transfer of all officers who have exceeded three years and clerks, five years, in the same position and office. This is an opportune time to have another look at the Enhanced Access and Service Excellence (EASE) agenda proposed last year by the department of financial services (DFS). This outlines the duties and responsibilities of public sector banks for their healthy growth. It recognizes that banking is intrinsically human-centric despite the increasing invasion of machines.
Today, the real HR issue is how to rejuvenate the enterprise and risk propensity of public sector bankers who have gone into hibernation in the last decade due to the system-wide ramifications of problem loans and frauds. Helping the profession bounce back will require focusing on a 4R policy: recruitment, remuneration, reskilling and research.
Recruitment: PSU banks are a diverse lot. Besides their geographical, cultural and linguistic disparity, quantitatively their businesses are wide apart. For instance, as of March-end 2017, the coefficients of variation for the nationalized banks with respect to the balance-sheet size and business (deposits+loans) were as high as 65.6% each. Thus, the current practice of common recruitment by an outside agency needs to be shunned. Instead, every PSU bank needs to recruit depending on its specific requirements.
Banks, being “special”, need specialized talent, as observed globally. In contrast, however, the specialists in PSU banks constituted a mere 5-8% of the total workforce, as estimated by a 2012 “KPMG—National Skill Development Corporation” report. With banking becoming increasingly knowledge and information intensive, PSU banks need a wide spectrum of specialists in the policy and operation cycle, encompassing all activities, rather than jacks of all trades. They must move in this direction through external recruitment as well as internal training.
In some areas, say, analytics, which the EASE agenda emphasizes, prior background is unavoidable. Currently, the use of analytics is minimal; only six PSU banks made some use of it for customer acquisition and product formulation, as the 2017-18 annual reports of 20 PSU banks revealed. Similarly, the arbitrary way in which some banks computed the marginal cost of funds lending rate, as observed in the September 2017 Reserve Bank of India (RBI) internal study group report, can be attributed to lack of domain knowledge.
Remuneration: Once recognized as a high wage island, PSU banks today face a different situation. As per RBI data, the compound annual growth rate of per employee wages and salaries, which was 13.7% from 2004-05 to 2010-11, decelerated to 6.4% from 2010-11 to 2016-17. However, the more crucial point is the current “different banks same pay” practice based on five-yearly bipartite settlements with unions. This has built-in perverse incentives. It undermines enterprise not only among the workers of the underperforming banks but also the well-performing ones, thus doubly jeopardizing systemic efficiency and flouting economic principles and logic. Therefore, instead of collective bargaining, the salaries of PSU bank employees need to be linked to the respective bank’s “ability to pay” with components of variable pay. Senior management should also have employee stock ownership plans.
Reskilling: In any profession, skilling/reskilling is the most valuable link in the entire HR chain of recruitment to retirement. Today, more than ever before, talent planning has become mission critical. The 2014 RBI committee on capacity-building in banks and non-bank institutions made recommendations for the development of a talent pool/pipeline in banks on a “buy and build basis” to enable them to keep pace with rapid technological advancements. The report needs to be implemented without delay. It also suggests the importance of both internal and specialized certification-based external training programmes, coupled with appropriate placement policies in banks, to bridge the talent deficit.
Research: Banking must be recognized as a knowledge-based industry, like information technology, where decisions necessitate constant research and development. In general, the research quotient in PSU banks’ decision-making process is minimal. Instances of PSU banks incurring opportunity costs due to lack of research or waiting for “free rides” abound, from financial inclusion to credit cards.
Only a few large banks have research units—which are, by and large, devoted to macroeconomic studies. A research unit must first contribute to the prosperity of its own bank directly or indirectly, and then to systemic efficiency. PSU bank leadership must embrace the knowledge and learning ecosystem.
As a Harvard Business Review survey revealed, HR capabilities have a strong correlation with business results. Steven Wynn, promoter of the most popular Las Vegas casinos (also currently implicated by the #MeToo campaign), stated that “HR isn’t a thing we do; it’s the thing that runs our business”. In PSU banks, the time has come to move on from episodic HR initiatives to connecting HR to the mainstream corporate strategy and transformation agendas.
Ashwini Mehra and Manas Das are, respectively, former managing director and former economist, State Bank of India.