Marco Conceptual

On the same day (March 30), Bank of Baroda employees too went on a striking work for an altogether different reason. Four employees' associations (All-India Bank of Baroda Officers' Association, All- India Bank of Baroda Employees' Federation, All-India Bank of Baroda Employees' Co-ordination Committee & Eastern Regional Council of Bank of Baroda Employees' Association) called for a strike protesting the bank's move to rope in a consultancy firm

to draw up a business strategy. Initially, the firm was appointed to chalk out an infotech strategy only.

This was just the beginning. PSU banks needed to implement at least another round of VRS to reach a respectable level of employee productivity.

istory of VRS up to the date of implementation by the respective PSBs, which commenced on 01.09.2000, was common for all the banks. This was because the initiative for action was with the Government of India, Finance Ministry and the environment that affected banks was externally oriented creating nearly identical problems for all the banks, the difference being only in magnitude. The incidence of individual banks scheme became visible only after the initiative was shifted to the respective banks to implement the scheme. In other words the difference in VRS between bank to bank manifested only at the point of implementation, i.e. when the results wereachieved.

H

The package differed from bank to bank but had been broadly structured around the "model" prescribed by the IBA. There was no difference in the eligibility criteria of officers or the quantum of compensation. Individual banks had discretion in defining the category of employees, who were to be kept outside the preview of VRS and who were not eligible to apply for the same.

Individual banks also had the discretion regarding the mode of disbursement. The model proposed that banks offer to pay 50 per cent of the settlement in cash and the balance in bonds with a lock-in period of three years. However State Bank of India (SBI), the largest Indian bank, offered to settle fully in cash. According to figures available by early February, of the

estimated one lakh and odd employees who offered to accept the package, at least 33,000 were from the SBI. However SBI has accepted VRS applications of only 20784, of which there were 6,694 officers, 11,271 clerical staff and 2,819 subordinates.

On a bank-wise break-up, SBI's estimated cost for VRS was the highest at Rs 1,500 crore. And average cost per employee worked out to Rs.6.52 Lacs. It was claimed that operating expenses for SBI in 2001-2002 increased by only 3.64% mainly due to savings in staff cost after Voluntary Retirement Scheme in the last fiscal year.

The SBI is the largest bank in India in terms of network of branches, revenues and workforce. It offers a wide range of services for both personal and corporate banking. The personal banking services include credit cards, housing loans, consumer loans, and insurance.

For corporate banking, SBI offers infrastructure finance, cash management and loan syndication.

Over the years, the bank became saddled with a large workforce and huge NPAs. According to reports, staff costs in 1999-2000 amounted to Rs 4.5 billion as against Rs 4.1 billion in 1998-99. Increased

competition from the new private sector banks (NPBs) further added to SBI’s problems.

Though SBI had 9,000 branches, a mere 22% of those (1935 branches) were connected through Internet. SBI’s net profit per

employee was Rs 0.43 million and SBI’s NPA level was around

From the above table it is clearly indicated that SBI was far from the standards that could be arrived from analyzing other banks NPA’s and profit per employee.

Analysts remarked that the very factors that were once hailed as the strengths of SBI - reach, customer base and experience - had become its problems.Technological tools like ATMs and the Internet had changed banking dynamics. A large

portion of the back-office staff had become redundant after the computerization of banks. To protect its business and remain profitable, SBI realized that it would have to reduce its cost of operations and increase its revenues from fee-based services. The VRS implementation was a part of an over all cost cutting initiative.

SBI faced a lot of protest against VRS from its employees due to varying reasons. Inspite of all such protests, SBI received around 35,000 applications for the VRS. Analysts pointed out that many bank employees opted for the VRS due to the better employment prospects. SBI had not anticipated such a huge response to the scheme. While the VRS was mainly aimed at reducing the clerical staff and sub-staff, the maximum number of optees turned out to be from the officer cadre. The clerical staff was reluctant to go for the VRS due to the low employment opportunities for them.

According to reports, the number of applications from officers stood at 19,295, which meant that over 33 per cent of the total officers in the bank had sought VRS.

While announcing the VRS on December 27 2000, SBI had merely stated that the management would relieve only those officer cadre applicants who had crossed the age of 55 years. The bank also issued circular barring treasury managers, forex dealers and a host of other specialized personnel, from seeking

barred from opting for the scheme. The VRS was also not open to employees who were doctorates, MBA’s, Chartered Accountants, Cost & Works accountants, postgraduates in computer applications. Another category barred from the VRS consists of employees who have received training at any Indian Institute of Management, the National Institute of Business Management, the Xavier Labour Relations Institute and trainers who have undergone training on behavioural sciences. Technical training is also a disqualification - applying to those trained in computer or information technology related areas at specialised external institutes in India or abroad and those with training in derivatives. According to highly placed SBI sources, the original VRS and the restrictions that followed have left hardly any significant department open to the VRS. A source said that the aim of the VRS was to reduce the large numbers of the award staff but most of the applicants were officers. "So SBI came out with tough stipulations to discourage the officers," an SBI official said.

In another circular, SBI mentioned that any break in service (i.e.

leaves availed on a loss of pay basis) would not be taken while calculating the service period. The bank also restricted the loan facilities to the personnel who had opted for the VRS. If an employee wished to continue a housing loan after accepting VRS, he was asked to pay interest at the market rate. After these

restrictions were introduced, only 13.4% of the officers were left eligible for VRS instead of the earlier 33%.

The conditions laid down by the management faced strong criticism from the officers who had opted for the VRS, but who could not meet the prescribed criteria. They alleged that the bank was practicing discrimination in implementation of the scheme and that no other banks had implemented such policies and denied the opportunity of VRS to officers who were willing to avail the scheme.

While the bank authorities considered SBI’s VRS agenda meticulous, sources inside the bank strongly believed 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 clearancesince 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. State Bank of India is not only the largest of the Indian Banks, but also it is the biggest Institution at the Global level in terms of manpower employed. In the period immediately before VRS implementation it employed 237504 officers and other employees. Through the application of VRS it has shed its work force by 20784 (8.7%). Cadre-wise the position is as under.

Particulars Officers Clerical Subordinate Aggregate

Total Strength 60536 117184 59784 237504

Those opted VRS 6694 11271 2819 20784

%age VRS to Total Strength 11% 9.62% 4.72% 8.7%

However State Bank of Travancore is a subsidiary of SBI and is of much smaller size. It has branches mainly spread in Kerala. The subsidiaries of SBI implemented VRS subsequently after it was implemented by the SBI and other Nationalised Banks. SBT had 13000 & odd number of employees (inclusive of all cadres). It incurred an expenditure of Rs.57 Crores towards compensation

payment under VRS and relieved 915 employees, which is approximately 7% of the staff-strength as detailed hereunder

Particulars Officers Clerical Subordinate Aggregate

Total Strength 3150 7023 2964 13137

Those opted VRS 534 299 82 915

%age VRS to Total Strength 16.96% 4.28% 2.77% /TD>7%

SBI took a hit in its profits by charging VRS expenses to the tune of Rs 8.8 bn in FY01. The bank's profits excluding VRS however jumped by 22%, in line..

(Rs m) FY00 FY01 Change 4QFY00 4QFY01 Change

Interest Income 222,009 260,034 17.1% 60,758 74,446 22.5%

Other Income 35,693 40,178 12.6% 11,322 14,782 30.6%

Interest Expenditure 152,726 177,556 16.3% 38,184 50,390 32.0%

Operating Profit (EBDIT) 69,284 82,478 19.0% 22,574 24,056 6.6%

Operating Profit Margin (%) 31.2% 31.7% 37.2% 32.3%

Other Expenditure 62,952 74,156 17.8% 19,008 24,319 27.9%

Profit before Tax 42,025 48,500 15.4% 14,888 14,518 -2.5%

Provisions & Contingencies 11,725 13,912 18.7% 718 -1,588

Tax 9,785 9,714 -0.7% 4,684 4,107 -12.3%

Profit after Tax/(Loss) 20,516 24,874 21.2% 9,486 12,000 26.5%

Provision for VRS - 8,832 - 8,832 -

Net Profit 20,516 16,043 -21.8% 9,486 3,168 -66.6%

Net profit margin (%) 9.2% 9.6% 15.6% 16.1%

No. of Shares (eoy) 526 526 526 526 Diluted Earnings per share* 39.0 30.5 72.1 24.1

P/E (at current price) 7.5 9.5

*(annualized)

SBI's topline grew by an impressive 23% in the fourth quarter of the year. However margins were depressed and operating expenses increased sharply. A 480 basis points drop in operating margins in 4QFY01 could be attributed to the inability of the bank to sustain yield on advances after a cut in deposit rates. ?

The cost to income ratio of the bank was also higher at 63% in 4QFY01 (56% in 4QFY00). But if we were to exclude an amount of Rs 4.4 bn written off towards the one-time issue expenses of India Millennium Deposits (to be redeemed at the end of five years, in 2005-06), the ratio declined to 57% in FY01 from 60% in FY00.

During the year SBI implemented a VRS plan to cut its operating costs and improve efficiency levels. The total cost of the scheme to the bank was Rs 23 bn. In FY01 the bank had made a provision of Rs 8.8 bn and planed to write off the balance expenditure equally over a period of four years.

SBI moved towards the right direction by implementing the VRS, foraying into retail, technology upgradation plan and entering into the insurance business. In future it was be however difficult for the bank to operate at high margins considering the increasing competition and improving quality of services provided by other banks. Also, the bank will have to provide a higher amount as provisions for non performing assets,

if the economic and industrial activity witnesses further downtrend.

According to industry watchers, by 2010, the entire SBI staff recruited between mid 1960 and 1980 would retire.

As a result, SBI would not have sufficient manpower to

In the post-VRS scenario, SBI planned to merge 440 loss-making branches and announced redeploy additional administrative manpower (resulting from the merger of loss-making branches) to frontline banking jobs. SBI also planned to reduce its regional offices from 10 to 1 or 2 in each circle. In August 2001, it was reported that a single officer had to take charge of 3 or 4 branches as the daily concurrent audit got affected.

Departments like internal audit, concurrent audit, monitoring, inspection of borrowers had hardly any staff, according to reports. It was reported that employees working in branches that had a high workload went on work-to-rule agitation,

blaming the VRS for their problems. Analysts felt that SBI would have to take serious steps to reorient its HRD policy to restore employee confidence and retain its talented personnel. SBI had many strong organizational strengths and an excellent training system, but due to weak HR policies, it had lost its experts to its competitors.

The employees of almost all the new generation private sector banks were former employees of SBI. The bank’s well-defined promotion policy was systematically flouted by the framers themselves and, as a result, employees with good track records were frequently sidelined. Many analysts felt that SBI was not able to realize the critical importance of recognizing inherent merit and

rewarding the performers.

The above factors were cited as the major reasons for the success of VRS in the officer cadres, who were reported to be demoralized and de-motivated. The arbitrariness and insensitivity at the corporate level had dealt a severe blow to the employees of the organization. What remained to be seen was whether SBI would be able to reorganize itsHRD policy and retain its talented personnel.

An article dated 27 may 2004 states the following..^th

“The State Bank of India (SBI) is likely to initiate a second round of voluntary retirement scheme (VRS) in the next few months. This time the bank will be targeting employees over the age group of 55 years. It is understood that the proposal will be put up before the board for approval.

The first round of VRS which was held about four years back was also targeted employees of the same segment. Speaking to FE, a senior SBI official said a final decision on the issue will be taken after the core banking exercise which involves integrating the branches.

As per a rough estimate, there were over 2 lakh employees of which about 60,000 were officers. SBI officials said that 10 per cent of the staff was of 55 years and above. “Recruitment activity was at its highest during 1960s-end and early 70s. Therefore, there was a large number of employees who had crossed 55 years of age,” a source added. SBI is likely to go ahead with the VRS plan independently.

Meanwhile, the board is also likely to study the merger proposal of the bank with its seven associate banks. The associate banks of SBI include the State Bank of Patiala, Mysore, Hyderabad,

into the proposal and chalk a feasible plan to facilitate the merger.

The merger is the only solution as they cannot co-exist as competitors in the market, particularly in view of globalisation and foreign competition,” a senior finance ministry official said