A Banks Hidden Assets

Although banks are entering an era of fierce competition, the human resource factor is still the most ignored asset.

One of the thrust areas of financial sector reform in India today should be the human resources factor. This perception has recently come into sharper focus following the recommendations of the S S Tarapore Committee appointed by the Reserve Bank of India (RBI) which says:The Committee underscores the need for strong initiatives on the part of the market participants to upgrade their human resource skills for enabling Indian financial entities to compete meaningfully with their counterparts abroad.

In order that they attract the best talent and expertise, individual banks and FI s should have freedom to determine their personnel policies, including recruitment and wage policies, without being constrained by any rigidities. This is particularly relevant to the banking sector in India. Here, public sector banks--which dominate the sector--are constrained by the Pillai Committee recommendations(1979). The recommendations, which are observed by public sector banks,prescribe uniform pay scales for all such banks.

 

In a market-driven environment, where customer expectations are forever on the rise, banks have to transform themselves to become profitable and customer-responsive. Also, with many of the major public sector banks having gone public, and others waiting in the pipeline, shareholders will play a critical role in insisting upon better performance from banks. Banks therefore, will have to function as profit-oriented, commercial undertakings. In order to achieve all this, banks have to recruit skilled and competent personnel.This obviously calls for a re - think in the recruitment methods and personnel policies and procedures of the banking industry as a whole.

United we fall

M G Ramakrishna, president, Centurion Bank (who was earlier an official with the State Bank of India), diagnoses the problem thus: Although banks today go in for a common industry settlement simply because it involves less complexities in negotiating, there is no doubt that this methodology is also generating a host of problems. In an industry-wide settlement, individual problems of different banks are not discussed. This result in individual banks having to conform to uniform pay scales.

The results could be disastrous. For example, points out a senior banker with a large public sector bank: The past three years have seen a large scale flight of personnel from major public sector banks. This is especially from the top management level and specialised departments such as treasury, to the new private sector banks and foreign banks. These banks are not bound by the industry-wide settlement.

What causes much of the resentment is the fact that the wage structure decided upon does not take into account the profitability position of banks; for example most employees of large and profitable banks like SBI feel that they are being underpaid as compared to their merit.

Recruitment rigm arole

One major area where autonomy could play a major role is recruitment.Recruitment today is a centralised process handled by the Banking Selection and Recuitment Board (BSRB). Says Madhukar Umarji, general manager, Dena Bank: Today even if a single person has to be recruited by the bank, it has to go through the entire gamut of formalities such as a long-winded process of advertising, receiving and screening applications, etc. This has to be exactly according to BSRB procedures which gives a competitive edge to banks which fall outside the purview. They can go via private consultants ( or even by word of mouth in the initial stages), and structure tailormade pay-packets.

This is primarily because the bank wants to avoid allegations of favouritism by the people who have not been recruited, says S N Sawaikar, deputy managing director, State Bank of India. At present, the public sector banks cannot recruit directly from management schools via campus recruitment primarily because of the centralised system, and secondly, because under the present scheme of things they would never be able to match the fantastic salaries offered by private sector and foreign banks.

Skewed avenues

The other important issue is that of promotions, rewards and punishments which is a very important factor in determining employee performance. Promotion criteria, although decided by the union, does not focus on performance as a major criteria for promotions. Seniority is perhaps the only real indicator which carries the maximum weightage. This can be gauged by the fact that it takes a minimum of 25 years for a person who has joined a bank in Scale I (which is the lowest scale) to reach Scale VII (which is the highest), irrespective of how good the performance may have been.

Another interesting aspect to be noted is the fact that for purposes of promotion, only the three years performance prior to the year in which the interview is held, is considered for appraisal. This makes it possible for an employee to tailor his performance according to his interview schedule. This means that an employee can perform at an average level for all the other years and still be promoted because he has performed well in the three year period, says A Piravi Perumal, assistant personnel advisor, Indian BanksAssociation (IBA).At the same time, an employee with consistently excellent performance tends to get frustrated in due course. Says Sawaikar: For an organisation of our size, we feel catering to 50 to 60 good people is better than concentrating on promoting only 5 to 6 excellent people.

Fast track promotions in public sector banks are also held up by the fact that unlike private sector organisations, all policy decisions are subject to judiciary review. Elaborates Umarji: This means if an employee is dissatisfied with the management decisions he can go to court.

Premium on non-performance

All this has meant that there has been absolutely no initiative for an employee to take any form of risk, say, credit risk or treasury risk, as there exist no punishments for non performance. If an employee does go ahead and take risks which pays off then there are some meagre rewards in the form of certificates with cash prises of very nominal amounts ( generally below Rs 2000). However, even in the case of a genuine credit decision misfiring, an employee could be bypassed for promotion even many years down the line. Says Ramkrishna, Centurion Bank: Fear of losing ones job for non-performance should be the best performance driver.

Inter-bank mobility, on deputation to another bank could well have been a workable solution if inter-bank deputation had not been mainly confined to vigilance departments. If at all a bank official wishes to work for another bank in a department of his choice, he would have to resign from the bank he is currently working in, to join another. Greater flexibility being given to the top banks could see the banking industry utilising cross-training and experience-sharing facilities which will benefit the industry as a whole.

A major concern expressed by bankers, which could arise as a consequence of bank autonomy, will be the loss of importance of the all-India unions, which today, are extremely strong. This can be seen from the fact that they presently get special leave, which for office bearers is 21 days and for Committee members is 17 days (apart from normal leave entitled to them).

Since these unions do not have uniform representation in all banks (when they arrive at a industry settlement), they do not see individual banks managements or the local bank union as a deciding factor. This reduces the importance of both parties affected by the settlement. In case autonomy comes in (which may not be easy as unions will oppose this tooth and nail, and espouse the cause of Equal Work, Equal Pay), individual bank managements as well as the local bank unions will gain importance, which will enable both parties to arrive at a mutually beneficial compromise.

What could happen

In a meeting with bank chiefs in February this year, the finance minister (FM) P Chidambaram, discused modalities about going about the autonomy issue.The finance minister has gone on record to state that the profit making banks will be given autonomy in due course. The broad outlines thrown up during a series of discussions were: one, parameters should be evolved to identify banks which could be given autonomy, and two, all banks should be categorised (see box: Acts of differentiation).

Although nothing concrete has emerged so far, yet most bankers are highly optimistic because of the compelling demand for human resource development from all quarters.

The DRM blueprint

The D.R.Mehta Committee, set up in June 1993 for looking into the personnel policies and method of recruitment in the public sector banks, tabled its recommendations in April 1996. Some of these were:

Clerical recruitment may continue to be handled by BSRB but the level of selection has to be upgraded to attract talented higher level performers delinking specialist posts from the uniform set of procedures and standardised eligibility criteria, with individual banks being permitted to recruit specialist officers constituting a Recruitment Advisory Committee to design necessary systems and evolve procedures and processes for recruitment of officers including specialists freedom for banks to recruit from All India Management Institutes, following the normal procedure of issue of public notice, including reservation for reserved category etc. full autonomy for individual banks for recruitment of all probationary officers introducing a system of accelerated promotion in the hierarchy, although such accelerated channels should be confined to officers in scales I to V criteria for fast track promotions need to be evolved which would involve clarity of role of each incumbent, setting up of goals of each position

and streamlining of annual appraisal systems evolving an appropriate exit policy for those who do not make the grade and may opt to move out increase in the quota of direct recruitment of officers from present level of 25 per cent to 50 per cent in a phased manner banks to provide for horizontal and vertical movement of specialists as also a special gate to join the mainstream may be provided banks to be given the discretion of creating their own post at senior executive levels inter - mobility among public sector banks in public sector banks in senior / middle management category by way of deputation banks be permitted to seek the services of outside experts and specialists in any critical functional area with approval of board BSRB to transform itself into a separate, financially viable institution catering to all players in the financial sector market the Banking Services Commission Act 1984 should be repealed.

Acts of differentiation

The finance ministers discussions with top level bank officials have thrown up possible norms and classification that could form the basis of autonomy : net profit making banks (these are the only ones that will be given autonomy) banks with operating profits but net losses (which arise because of the poor asset quality and related provisioning) banks with net losses

There are certain other ratios which have been suggested by various bankers which can also be considered as benchmarks for differentiating banks. These are : total administrative expenses (differentiation based on a particular range) staff to total expenses ratio over a period of time income per employee The salary and total compensation modalities have also been broadly worked out during the course of the discussions mentioned above.

The heads will now be classified as : core items which will broadly include basic , DA, CCA, HRA etc will be similar for the banks (including the profit making ones) items which will broadly include all allowances and benefits can be decided individually by each bank (only the profit making ones) depending on the consultation with the individual unions.