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A Report by Shweta Jain and Gouri Shukla in Business Standard-"The Strategist" dated 8th October '02.

At a State Bank of India (SBI) branch, a candid notice asking customers to bear with the inconvenience caused by the voluntary retirement scheme (VRS) says it all. SBI’s VRS exercise was considered one of the better managed ones in the public sector banking industry. Yet, it too suffered as a result of the industry-wide VRS that was implemented by 26 banks from 2000.

Customer inconvenience was the least of the problems that banks suffered. There are disgruntled employees throughout the industry. Of course, this state of affairs is inevitable; even the best-planned VRSs have an impact on employee morale. But it is also true that the exercise has left several bank managements dissatisfied with the results in business terms too.

To be fair, the exercise cannot be written off as a rampant failure. To start with, it’s the first of its kind on this scale. It was also a major move in an industry in which employment was almost considered a sinecure. But the problems it has thrown up hold important clues to what can go wrong when corporations implement a golden handshake.

Of course, SBI, like all the other public sector banks, had little choice in the matter. As Anurag Khanna, managing director and CEO, BanknetIndia.com, points out, “Banks would have collapsed if the VRS was not implemented.”

As banking reform gathered speed and the prospect of government hand-outs diminished, it became clear that banks could no longer afford to be overstaffed.

The finance ministry’s calculations revealed that on the basis of business per employee (BPE) of Rs 100 lakh, there were 59,338 excess employees in 12 nationalised banks. If the BPE were raised to Rs 125 lakh, the number shot up to 1,77,405. On a conservative estimate, it could be said that the public sector banking system was overstaffed by roughly 1,00,000 people.

Hiring and firing in the public sector banking industry is a highly unionised business, subject to protracted negotiation with the Indian Banks Association (IBA). After years of deliberation, in November 1999, the government sanctioned the release of the VRS to the IBA. Between November 15, 2000 and March 31, 2001, all public sector banks, except Corporation Bank, introduced VRS.

The result: out of the total 8,63,117 employees in 26 public banks, around 1,00,810 (11.7 per cent) employees took the offer before March 2001, according to a study on VRS published in an IBA bulletin.

In terms of statistics, the results were dramatic. In 2000-01, the staff cost of all the 27 public sector banks (including Corporation Bank, which did not opt for VRS), was Rs 21,050 crore. By 2001-02, staff costs had dropped to Rs 18,959 crore.

Where were the problems? Take SBI. The total number of employees at SBI who were given VRS stood at 20,784, of which there were 6,694 officers, 11,271 clerical staff and 2,819 subordinates. The cost of VRS to the bank was Rs 2,000 crore-plus.

While the bank authorities considered SBI’s VRS agenda meticulous, sources inside the bank strongly believe that the bank should have phased out its VRS implementation because of the disruptions it caused. For instance, in some cases, the bank’s managerial employees had to share some clerical functions, which delayed the clearance process. Irate customers of SBI complained of the increased waiting time for cheque clearance since there was shortage of manpower.

SBI faced flak not only for customer service but also for interest lost on money transferred from various branches as delays in remittance of cash snowballed to over five days with SBI too understaffed to clear transactions in time. In normal cases, the transfer takes place on the same day or the next day.

According to media reports, some of SBI’s problem centres were Pune, Baroda, Surat, Panjim and, to a lesser extent, Jalandhar and Jamshedpur. But one of the bank’s human resource executives claims that there were no identified problem centres as such and that the media reports were inaccurate.

He concedes, however, that the VRS resulted in some minor regional imbalances, but these were tackled by SBI by rotating the administrative staff to various branches wherever there was a need to do so. SBI’s manpower problems were shared by all public sector banks.

Explains a banking analyst: “Public sector banks have numerous branches and the relocation of staff from one area to another was not as easy as it seemed because the notice given to employees was too short.”

Says a former employee of the State Bank of Maharashtra, “There’s no doubt that the VRS was mismanaged. It left all branches short on staff and managers and the remaining staff frustrated.”

Part of the problem had to do with the fact that in several cases, many more people opted for VRS than the managements had bargained for. In most banks, the management had not planned the replacement of the duties of the exiting staff.

For instance, in Vysya Bank, according to the union, the percentage of employees who opted for VRS was twice the expected 10 per cent. According to HR officials at Dena Bank, in May 2001, Dena Bank lost around 3,842 employees due to VRS (or roughly 25 per cent of its total manpower).

Most banks followed a time-consuming policy of filling in some of the vacancies by mobilising some staff from branches with excess staff. Says an ex-employee of the Union Bank of India, “The banks in semi-urban and rural areas were hit badly owing to lack of computerisation and deployment issues.”

While the banks managed to achieve two major VRS objectives — removing surplus (including non-performers) and reducing employee costs — a second objective was still to be met. VRS was supposed to level the age profile. However, the results were not different from before with 16 per cent below 35 years of age, a sizeable 45 per cent between 35 and 44 years and 39 per cent between 45 and 60 years. Roughly 75 per cent of the officers who opted for VRS were in the 40 to 55 age bracket.

Further, SBI chose not to abide by government guidelines and offered VRS only to employees above the age of 55. According to government guidelines, any employee who was above 40 and had completed 15 years of service was eligible for VRS. But SBI marked its own cut-off age: it offered VRS to only those employees who were over 55. This created a furore among employees below 55 years who also wanted to opt for VRS.

Besides, the VRS could have balanced the skill profile vis-à-vis the employee mix (officer:clerical:subordinate), which was earlier 27.6 per cent:50.22 per cent:22.2 per cent in public sector banks. Post-VRS, according to the IBA bulletin, the ratio changed to 25.4: 51.0: 23.6, which means that along with clerical staff, the proportion of officers has gone down by 2.2 per cent.

The government has now disallowed new staff recruitment, forcing banks to retrain the remaining staff to handle new duties at the shortest possible notice. Some banks have resorted to promoting clerks to officer cadre. Andhra Bank, for example, promoted 1,200 clerks to officers with a 20-plus per cent pay hike.

The impact of manpower shortage would have been less if the banks’ functions had been automated or computerised. However, reducing employee strength before technology arrived only led to chaos. The IBA says that in the fiscal 1999-2000, the Central Business Commission had summoned all banks to be 70 per cent computerised.

Accordingly, most public sector banks started to work on the target around the time VRS was being implemented. But an SBI HR executive says that the decision was taken too swiftly to enable proper communication to employees.

In complete contrast, Corporation Bank refused to exercise VRS at that point and was actually hiring 200-odd new employees for specialised services like technology, marketing and so on. However, the bank is now considering the VRS option for about 160 officers above 50 years of age.

Says a senior officer at the Corporation Bank, “A final call has not been taken on the VRS issue. We have sent a proposal to the government for the VRS. But no decision has been taken yet.” The bank claims that fresh recruits will replace the officers opting for the scheme. The officer claims that this strategy would help the bank cut costs by 50 per cent because the older lot in the bank is being paid double of what the fresh recruits are being paid. Also, older employees are much less productive.

An additional — and major — problem was dealing with those who were eligible for VRS and whose applications were rejected. In SBI, for instance, only 21,329 employees’ applications for VRS got approved out of the total of 35,380 applications, leaving about 11,000 dejected.

This lot formed an association — SBIVRS Optee Officers’ Association — to articulate their case and request the government to reconsider applications. The association also maintained that the SBI management “abysmally lacked the human touch in its manpower planning and this resulted in indelible functioning among its officers.” Eleven cases have been filed by these employees against the bank.

Says the HR executives at SBI, “It will take some time to soothe the heartburn but through constant communication the employees that were refused VRS, are being convinced that they were needed and hence were not granted VRS.”

There were other problems, Says an officer with Punjab & Sind Bank: “The VRS was conducted in a very arbitrary manner. For instance, VRS was on the verge of becoming Compulsory Retirement Service (CRS). A particular employee in a Mumbai branch, for instance, wanted to withdraw her application but was refused by the management and was forced to leave.”

Also, ironically, the financial package didn’t appeal to optees who opted for the lumpsum payment mode. Though the VRS amount was as high as Rs 8 lakh to Rs10 lakh per employee, most employees would have preferred a monthly pension scheme.

In Punjab National Bank (PNB), the VRS optees have formed the PNB Voluntarily Retired Staff Association (PNBVRSA), which has filed a case against the bank for settling outstanding issues arising out of the “separation” scheme offered recently. Debated issues include reversing the payment mode to a pension scheme and the method of computing tax deduction on the ex-gratia payment and so on.

Says Khanna of BanknetIndia: “Usually in public sector banks, the management has an interface with the employees, offering them a counselling-cum-discussion session. But in this case, since a huge number of employees were in the process of exit, this procedure was skipped.”

Echoes Ganesh Shermon, senior partner, Strategy Organisation and People, Andersen Business Consulting (soon to be KPMG Consulting), “Banks clinically reduced the headcount. Counselling and out-placement were the issues that were conveniently forgotten by the banks pre- and post- VRS. And worse still, a badly-planned VRS depletes the shareholder value.”

According to Shermon, there were fundamental fallacies in the way banks carried out the VRS. A good VRS, according to him, should be demographically aligned, based on age and competency profile of the employees, should have a clear-cut manpower plan and should be driven by keeping in mind future strategies of the business. “These were missing in the VRS implementation among public sector banks,” says Shermon.

Drawing a contrast with the corporate sector, Shermon says corporates are significantly more focused in their VRS implementation with a certain amount of subtle manmarking. For example, when Tata Steel started its VRS, a planned and phased implementation over five or six years saw an ordered reduction in staff. The employees leaving were also offered counselling and guidance for post-VRS employment.

This is a crucial element of the whole exercise, and it is something bank managements overlooked. Those hoping to cash in on their experience and join private sector banks found that there weren’t too many jobs going around. “This was because the employees who were granted VRS, were perceived as the ‘inefficient’ lot discarded by their employers,” says Khanna.

Says HRD consultant J B Kabra of Mind Movers Management Consultants, “To nullify the psychological impact on employees’ lives, banks could have provided them with alternative means of employment. The optees could have been employed alternatively in the co-operative sector banks, who constantly need staff who can work in shifts.”

One of the alternatives to VRS is the Sabbatical Scheme: here, the employees were allowed to go long leave without pay with an aim to cut costs. They were also assured help in getting jobs elsewhere. But this scheme raised issues about the promotion procedure for those who would return. Many “returnees” expected promotions to be on par with other colleagues.

In August, the IBA asked its member banks not to recruit former public sector bank employees who had opted for VRS. The IBA is considering an option where people could join any other bank on returning the VRS ex-gratia payment to the former employer.

So, are the banks leaner and meaner money-making machines post-VRS? There is still some time for that, at least till computerisation is complete.

As for the customers, most would vouch for the fact that post-VRS, there has been little change in the banks’ efficiency. And last but not the least, those who didn’t opt for VRS this time, are looking forward to the next round of VRS.

Extracted from Business Standard dated 8th Oct 2002

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