Banks, trade unions agree on 15% hike in existing wage bill of 35 lenders

All employees will get additional pay to the tune of 5-15 days of basic and dearness allowance components of their salary.

Bank managements and trade unions on Wednesday agreed on a 15 per cent hike in the existing wage bill of 35 lenders, along with a first-of-its-kind performance-linked incentive (PLI) for state-owned banks.

“The annual wage increase in salary and allowances is agreed at 15 per cent of the wage bill as of March 31, 2017, which works out to be Rs 7,898 crore on pay slip components (annually),” according to a memorandum of understanding between the Indian Banks’ Association and the United Forum of Bank Unions, representing workmen unions and officers’ associations. The wage revision will be effective from November 1, 2017, and will benefit around a million bank employees. This includes state-owned banks, old-generation private banks such as Federal Bank and Dhanlaxmi Bank, and some foreign banks. 

The PLI for public sector banks (PSBs) will be a first (which will be optional for private and foreign banks that are part of the agreement) and will be based on the annual operating or net profit of the lenders individually. This is a departure from the past practice of setting a fixed salary hike based on bilateral negotiations.

Terming the agreement as “historic”, Sunil Mehta, chief executive officer of Indian Banks’ Association (IBA), said the 15 per cent hike will include a 2.5 per cent raise in basic pay and dearness allowance components worth Rs 1,155 crore. He said the banks and unions have given in-principle approval to remove the cap on family pension of Rs 9,000. Bank employees are entitled to pension of 30 per cent of the basic pay.

“We are happy that despite the ongoing Covid-19 pandemic, an MoU could be signed for wage settlement. But the 15 per cent wage hike does not include pension and superannuation benefits. We will continue to discuss the final terms of the agreement in the coming days,” All India Bank Employees’ Association General Secretary CH Venkatachalam said.

All employees will get an additional pay of 5-15 days of basic and dearness allowance components of their salary per year, based on the profitability levels. Banks reporting a yearly increase in operating profit less than 5 per cent will not give any performance incentive. Banks reporting an increase in operating profit of 5-10 per cent will give additional salary of 5 days, 10-15 per cent 10 days and above 15 per cent 15 days.

But there are conditions to this as well. If banks, which report operating profit above 5 per cent, do not clock annual net profit in those years, the employees will get an additional pay of only 5 per cent.

The new agreement will cover officers up to scale-VII grade, which include general managers, deputy general managers, assistant general manager and divisional managers. 

“In today’s banking scenario, there is stiff competition among different category of banks, ie public sector, private sector and foreign banks. In order to inculcate a sense of competition and also to reward the performance, the concept of PLI is felt to be introduced,” the MoU said. The MoU will be converted into a formal agreement within the next 90 days.

Many private banks already have a component of variable pay in their salary structure. Based on the individual’s and bank’s performance, employees are offered variable pay in the form of cash or stock-linked instruments along with employee stock option plans.

The banks’ contribution to the National Pension System fund will be increased to 14 per cent (of the pay and dearness allowance part of the salary), up from 10 per cent right now, according to the MoU. This will, however, require the approval of the government and will be approved on a prospective manner from the date when the settlement is signed.

The final settlement will state in clear terms the distribution of annual wage increase of 15 per cent between workmen and officers.

There are some “other issues” of the management and unions or associations which will be negotiated in next 90 days and will be incorporated in the settlement. For instance, the bank unions have been demanding a five-day work schedule but the banks management is not in favour of the idea. At present, bank branches remain closed on alternate Saturdays (the second and the fourth Saturday of every month).

The balance sheet of banks will not be impacted at one go as most of the banks have been incorporating some of the impact of the wage negotiation on their books, a PSB chief executive said, requesting anonymity.
 

Key highlights

• Wage revision effective from November 2017 to October 2022
• The increase in wage bill stood at Rs 7,898 cr on payslip, compared to a hike of Rs 4,725 cr in the previous settlement
• Banks with increase in operating profit of less than 5% will get no additional pay; those with 5-10% will get additional pay of 5 days, 10-15% 10 days, and above 15% 15 days
• Banks with a hike in operating profit above 5% but no net profit annually will get additional pay of only 5 days
• Increase in NPS contribution to 14% of basic pay, up from 10% at present, subject to govt approval
• No cap on family pension payout, which is Rs 9,000 at present
• The performance-linked pay will be linked to operating profit, in the range of 5-15 days of additional pay