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Print edition : Mar 13, 2009 T+T-
in Mumbai

THE Indian financial sector, a relatively new industry when it took off post-economic reforms, generated a substantial amount of wealth and employment within a short span of time. Layoff was unheard of in the industry. But in the past six months, the word became the most dreaded one. With international financial services companies either collapsing or facing massive losses in the United States and the United Kingdom, Indian companies are beginning to feel the heat. The first area that is being corrected in order to streamline their operations is human resource.

In Mumbai, Indias financial capital, the mood is sombre. Nobody is taking anything for granted.

When businesses begin losing money or services become redundant and you need to cut costs, the first target is employment, said Miten Mehta of Bellwether Capital, a private broking and investment firm. Of course, it is unfortunate and there could be other methods of cutting costs but with salaries at such staggering levels, by right-sizing, as it is now called, you get an immediate relief on costs.

Several private firms, including Indian companies Frontline spoke to, are of the opinion that layoffs are inevitable given the global crisis, but they are unwilling to divulge numbers or percentages of staff they could lay off.

Among the figures that are in the public domain, banking juggernaut Citibank has laid off 37 top-level executives in India. It plans to axe 50,000 jobs worldwide, including 1,000 in this country. A leading investment bank in India, DSP Merrill Lynch, has let go of 40 executives from its private banking division, causing much angst in the financial community. Financial services major Barclays plans to layoff 2,100 people in investment banking and money management across the world. It has a presence in India. So the axe may fall here too.

The only comment Citibank offered when contacted was that the attrition level was natural, and was in accordance with its annual average. With regard to hiring, it admitted that recruitment was not at the levels it was in the past three years.

The next 18 months look bleak. We are seeing just the beginning, and there is more pain to come. With several businesses in the financial services sector struggling to stay afloat, there is a freeze on hiring and hundreds of jobs are becoming redundant, said a spokesperson for an international investment bank. For us, the worst part is letting go of performers. Initially it was laying off those who were in any case on the brink because of non-performance or were at lower levels. Now, with businesses such as investment banking not doing well, we have had to reduce the head count and terminate the employment of some very good people from the middle to senior levels, she said.

According to an investment banker with a small Indian firm, investment banking, which includes areas such as mergers and acquisitions and raising capital, is down by almost 50 per cent. This is across the spectrum from large-scale international companies to boutique firms. Private equity is another section that is struggling. There are few IPOs (initial public offering), and private placement of shares has dropped dramatically from 2007.

Furthermore, new companies are not entering the market and so there are few job opportunities. In fact, the global finance leader Goldman Sachs was to bring its asset management division to India in 2008. It spiked the plan. A banker who was offered the job of heading this division said he had declined the opportunity as his company had made him a better offer. Its a twist of fate because no one declines Goldman. Yet I did, and now at least I still have my job.

According to a recent study by the Associated Chambers of Commerce and Industry of India, employment generation in the top six sectors, which include finance, fell from 35 per cent in the first quarter to 15.8 per cent in the second and 10.8 per cent in the third. In the financial sector, the share of job creation dropped from 7 per cent in the first quarter to 2 per cent in the third quarter. A headhunter who does placements in high corporate positions said his business had virtually come to a standstill. There are very few openings and too many people are vying for these jobs. We got used to high pays and good jobs from the late 1990s. So it is difficult to face this discouraging situation.

But finance is cyclical, and this industry is known to have bounced back, says Mita Khanna, a director in a placement firm. A positive outcome will be that pay scales would become more rational. Besides, this is not the only sector in the industry to be suffering. Everyone is going through a rough time. Miten Mehta says India is primarily hit because of the problems of Wall Street. For instance, Lehman Brothers filed for bankruptcy and was subsequently bought by Barclays in the U.S. and Nomura in Asia. There will be job losses when acquisitions take place. Bank of America bought Merrill Lynch and caused a shake-up, he says. The effect will trickle into India.

Moreover, Indias exposure to money from overseas was huge. It is largely owing to this that the financial sector saw such a spectacular boom. The Indian stock market became heavily dependent on international money.

Explaining the crisis, Manish Sharma, an independent investment banker, says the Indian financial sector has witnessed many storms since liberalisation. It saw the Harshad Mehta and Ketan Parekh stock market scams and escaped almost unscathed from the Asian financial crisis in the late 1990s. We averted the currency crisis, which afflicted several of the Asian tigers [Thailand, South Korea and Indonesia] primarily through our step-by-step approach and because we had not [and still have not] removed all controls on our currency policy.

However, the current crisis is different and we cannot escape its impact. India is more dependent on the global economy now than ever before. Although our banks had a very small exposure to sub-prime loans, we have been affected by the sub-prime crisis. Global liquidity dried up and Western markets started shrinking. This resulted in much lower capital flows to India, which in turn have knocked off more than 50 percentage points of the stock market index in less than a year, he says.

Indian companies suffered a double whammy with the shrinking of export markets and access to capital. The well-being of the financial services sector is directly linked to the stock markets and the health of domestic businesses. With both in some trouble, the short-term outlook for the sector is not very promising, said Sharma.

Preeti Singh (name changed), a corporate lawyer with a financial firm, lost her job recently as the company was downsizing. Earning close to Rs.30 lakh annually, she suddenly found herself straddled with monthly financial commitments but no assurance of an income to pay them. Preeti Singh cannot talk to the media as she has gag orders.

She came from New York with her husband in early 2008 after they were both offered lucrative positions in corporate houses in Mumbai. The downturn in the U.S. had not yet escalated, and when it did, she was glad to have made the decision to come to India. The couple rented a flat in one of Mumbais most expensive areas and led a typical young professional corporate existence. Membership in clubs, holidays abroad and two cars. With her job gone and the market so gloomy, she has currently no idea when or where she is going to get work. Even her investments, which could be a fall-back option for a few months, are not doing well since the stock market is so low. Preeti Singhs case is typical of the many that have been laid off. A postgraduate with a background of good education, she is a hapless victim of circumstances.

There is a lot of talent like hers out there but no one is willing to take them, said Sharma.