Undermining banks' role

The Voluntary Retirement Scheme drive in the public sector banks threatens to undermine their role as the prime agents of state-directed economic and social development and holds out the prospect of long-term hardships for employees.

THE new mantra of restructuring in the era of modern globalisation is lean and, if possible, mean industrial entities. But what if, in the name of cutting flab, publicly owned institutions lose their body and soul and raison d'etre? This is what a t least some sections of bank employees are asking about the manner in which public sector banks are resorting to manpower-shedding with the aid of the Voluntary Retirement Scheme (VRS). Within days of the announcement of the scheme, more than one lakh e mployees in 18 public sector banks applied for early retirement.

The beleaguered unions of bank employees say that the fear of impending job losses has led to this overwhelming response. Although such fears were initially confined to the three "weak" banks, the unfolding reforms in the financial sector have extended t hese to more banks. The managements, led by the Indian Banks Association (IBA), however, attribute the response to the "attractive package" on offer to those opting for the VRS.

The package differs from bank to bank but has been broadly structured around the "model" prescribed by the IBA in October 2000. 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 perio d of three years. However, of the 18 public sector banks that have offered VRS packages, some such as the State Bank of India (SBI), the largest Indian bank, have offered to settle fully in cash. The actual amount payable has been determined by taking in to account the employee's number of years of service and the remaining service. According to figures available by early February, of the estimated one lakh employees who have offered to accept the package, at least 33,000 are from the SBI.

The VRS was prompted by the government's perception that banks are heavily over-staffed and that technology upgradation, particularly through the pervasive use of computers, justified a reduction in manpower. It was postulated that banks, particularly th e "weaker" ones, would need to shed a section of the clerical staff, a large number of whom deal with routine work.

However interim figures (provided by the unions) reveal that a substantial proportion of those who have opted for the VRS comprise officers and not clerical staff. In the SBI, for instance, it is reported that 22,000 of the 33,000 personnel who have opte d for the VRS are officers. The other significant aspect is that the exodus is not confined to the "weak" banks; thus, the number of those who have opted for the VRS has been rather high in banks such as the SBI, Bank of India and Bank of Baroda, which a re generally regarded as better performers. The subsidiaries of the SBI have not yet announced their VRS packages. While Corporation Bank has announced that it does not intend to offer a VRS, Central Bank of India is to launch its VRS later in February.

S.R. Sengupta, general secretary of the All India Bank Officers' Confederation (AIBOC), told Frontline that the banks concerned would now face serious problems because there had not been "proper application of mind" in the implementation of the VR S. He alleged that in their eagerness to follow the government's directives, the banks had "not paid attention to manpower planning". He narrated the case of a bank branch where all the personnel - from the messenger to the branch manager - opted for the VRS, to make the point that the VRS is likely to play havoc with normal commercial banking operations.

One of the reasons for the "success" of the VRS was reckoned to be the apprehension among employees about an impending roll-back of the retirement age for bank officers from 60 to 58 years. The fact that many of the applicants are aged above 55 is cited in support of this point. Union sources contend that these officers have opted for the VRS in order to protect their salaries for the two years of service they now fear they would be deprived of.

Shanta Raju, general secretary of the SBI Officers' Association, affiliated to the AIBOC, said the VRS had "resulted in an alarming situation." He said that 22,000 of the 60,000 officers in the SBI had opted for the VRS. In the beleaguered Indian Bank, m ore than 2,500 of the 4,000 who had opted for the VRS were officers. The situation in the Chennai-based Indian Overseas Bank is similar, according to union sources.

Sources in the Bank of India told Frontline that the management had earlier announced that it had "excess" manpower to the extent of 10,000 personnel - 2,000 officers, 6,000 clerical staff and 2,000 sub-staff. However, the unions claim that nearly 3,000 officers have so far opted for the VRS. V. Eswaran, general secretary of the Bank of India Officers' Association, told Frontline that a large number of senior officers at the level of general managers, deputy general managers and assistant general managers had opted for the VRS. "The bank has lost its trained resources," he said.

Sundararaja Raju (57), deputy chief manager at the Bank of India's Mount Road branch in Chennai said that he opted for the VRS after 36 years of service because he feared that the retirement age would be reduced. He said that 12 of the 49 employees at th e branch had opted for the scheme. Under the terms of the package he is entitled to Rs. 8 lakhs - Rs. 4 lakhs in cash and the balance in bonds repayable after five years. The cash component would be taxed at the rate of 35 per cent. He felt that VRS paym ents could be illusory in terms of the financial security that it could offer.

There is also apprehension that the exodus of staff may increase the workload of those who stay on. Junior staff will have to be trained soon so that they can take on the additional workload. More serious is the fear that banking operations will be serio usly affected and in fact even curtailed because of the paucity of trained staff. Shanta Raju said that this redeployment of personnel could seriously affect banking operations in the rural and remote parts of the country. It is estimated that about two- thirds of the 60,000 branches of public sector banks are in rural and remote areas.

Guidelines issued by the Reserve Bank of India limit fresh recruitment by individual banks to 0.25 per cent of their respective staff strength. This means that the SBI, with 2.35 lakh employees, can recruit at the most 2,000 persons across all categories of employees during the next year. Shanta Raju reckons that the shortage of skilled personnel would not only affect the bank's operations but seriously increase pressure on the existing staff.

It was initially expected that about Rs. 6,000 crores may be needed to fund the VRS. Assuming an average outgo of Rs.10 lakhs per employee, the package in the public sector banks is now expected to cost over Rs. 10,000 crores. The overwhelming response n ow means that the banks would need to raise much more money than had been anticipated. However, Y. Radhakrishnan, Deputy Managing Director in charge of human resource development at the SBI, told Frontline that the SBI was "fully geared to meet th e outflow". He also said that "there is no fear of destabilisation" in the wake of the exit of a large number of officers under the scheme. Although the SBI's offer closed on January 31, employees have until February 15 to change their mind.

While the expense on the VRS is of course a major worry for the banks, they will also be affected by the drain on profitability in the short term. In addition, the Capital Adequacy Ratio (CAR) will come under strain. The stringent CAR norms, a significan t prescription of the Narasimham Committee's recommendation for financial sector reform, is likely to force the banks to the capital market. In fact, Sengupta alleges that the government is forcing the banks to do just what it otherwise seeks to through the proposed legislation - to reduce government equity in the public sector banks to 33 per cent.

THE restructuring of the banking industry that is now apace has alarmed those who visualise a catalytic role for the banks in economic development. There are fears that the public ownership of banking, which in 1969 ensured that banks became a part of na tional economic infrastructure, is now being decisively reversed. Mergers of bank branches, called "closures" by the unions, are resulting in banking operations being totally withdrawn in parts of the country. For instance Indian Bank has closed 59 branc hes across the country, merging them with other branches. On January 19 the bank closed down 13 rural branches in Tiruvannamalai district in Tamil Nadu. A union activist in the bank said that the closure of the branches, which were servicing nearly 100 v illages in the area, had been condemned by the local population. Several women's self-help groups (SHG) active in the area participated in the protests. A union activist, who participated in the protests, told Frontline that the deposits in these branches, which amounted to over Rs. 15 crores, would now go to moneylenders or other informal channels of credit. "In many of these villages," said the activist, "the bank has been the only means of state intervention in economic development... That is being closed now." Indian Bank is expected to close about 100 branches by March 2001.

The unions allege that the VRS is in tune with the government's objective of downsizing the public sector. They fear that the banks would be forced out of the development role that they had been performing. Recent reports indicate that public sector unit s are likely to replicate the VRS packages of the banks. Moreover, the closure of branches would shrink their space. Once this is done, there would be very little to distinguish them from the private and foreign banks, which are mainly confined to the me tropolitan and urban centres. Once downsized, and subjected to the planned dilution of government stake, they are likely to be ready for sale to private and foreign banks.

Bank employees' organisations have repeatedly asserted that the main reason for the decline of public sector banks is the large volume of non-performing assets, for which large corporate clients are mainly responsible. In the last few years the unions ha ve been campaigning for changes in banking legislation that will enable banks to recover loans from defaulters. They complain that while the government has punished the banks for their mounting NPAs, it has done little to enable them to make speedy recov eries from their large corporate clients.

Union leaders admit that they are now engaged in a grim battle against reforms. There has been criticism that bank employees, unlike workers in the insurance sector, have not extended their reach beyond the narrow confines of their own workplaces and dem ands. In response, bank union activists say that this comparison is misplaced because the banking industry is much more complex and not as homogeneous as is the insurance industry. They stress that their concern does not relate to the matter of job losse s alone, but to the larger issue of banks as engines of economic and social development.