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Project:-Indian Banking in the New Millennium
Module:-Voluntary Retirement Scheme - The Shortcomings of
the Scheme in its Perception & Implementation
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Continued from Previous Page - The Need and Urgency of PSBs to Downsize their Workforce
Voluntary Retirement Scheme (VRS) What it is & More - The Shortcomings of the Scheme in its Perception &
Implementation - Criticism voiced by the Trade Unions
[by Ms. K.R,Chitra, PG Student, M.Phil, Kerala University

This dissertation on Voluntary Retirement Scheme(VRS) with special reference to the schemes implemented by State Bank of India (SBI) and State Bank of Travancore (SBT) is an attempt towards an in-depth study and critical analysis of the subject to highlight the diverse features of the Scheme floated by Public Sector Banks (PSBs) in the year 2000 vis-a-vis both the objectives of the banks and the aspirations of the employees who opted to retire under the scheme. It is compiled by Ms. Chitra K.R., a student preparing for MPhil from Dept of Economics, University of Kerala.

The VRS was prompted by the government's assessment 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 the "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 opted 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. 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 VRS. 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.

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, more 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.

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 seriously 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 also 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 now 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 the outflow". He also said, "there is no fear of destabilization" 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 significant 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 national 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.

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 units 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 metropolitan 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.

Merits of VRS as a strategy towards manpower planning

It was possible to effect a break through to achieve quickly and within a short time and without any friction a task that otherwise belied an easy solution. Th example of VRS implementation in the Banks became a model to be implemented by the Government in various other organisations and departments. In this way it is an achievement.

In the scheme where the option of choice shifts to the employees and not in the hands of the Banks, there is a certain scope to face some anomalies. The Banks wanted to shed surplus clerical and subordinate strength. But there was overwhelming response from the officers in scale II and Scale III. There can be no surplus in this category, whereas Officers ion Scale I, who perform routine supervisory jobs could be over-staffed. But the problem is of short-term nature. Officers who left in Scale II, and Scale III were earlier in Scale I and prior to that most of them were in the clerical cadre. Thus there is no need for the banks to look to the open market to replace middle-management cadre officers, who have left. Eligible clerks would be promoted as Scale I officers and eligible Scale I officers as Scale II cadre. In fact this exercise has already started in many of the Banks including SBI and SBT. There was in the preceding decade too much stagnation in these junior cadres and promotion was not taking place. The particular effect of VRS has come as a blessing to them in disguise.

Second problem faced is that geographical/regional mismatches. There were more desertions under VRS at specific centres. This difficulty could have been avoided, if VRS planning was done region-wise and centre-wise and implemented after identifying surplus manpower at each point. But the scheme would become less attractive and will lose some of the characteristics of the label "voluntary". It is now possible to redeploy staff available from one centre to another (i.e. from the surplus to the deficit centres). This process also can be completed within 6 months to one year, and therefore its negative impact can only be temporary.

Most of the banks have absorbed the expenditure on account of VRS as per guidelines of the Government, and disbursed in installments, while SBI could decide to pay the full amount in cash in a single occasion. The bogey of problems of short-term liquidity crisis and impairment of Capital Adequacy Ratio were raised, but the fact is that the banking System in particular the PSBs have performed extremely well in the financial year 2001-02 (post VRS-period). In fact in this year the PSBs have done even better than the private banks.

How the Scheme was Implemented in PSBs in General
and SBI and SBT in particular

History of VRS up to the date of implementation by the respective PSBs, which commenced on 01.09.2000, is common for all these banks. This is because up to this stage 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. results achieved.

The package differs from bank to bank but has been broadly structured around the "model" prescribed by the IBA. There is 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 are 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, have offered to settle fully in cash. According to figures available by early February, of the estimated one lakh and odd employees who have offered to accept the package, at least 33,000 are from the SBI. However SBI has accepted VRS applications of only 20784, as indicated above.

On a bank-wise break-up, SBI's estimated cost for VRS is by far the highest at Rs 1,500 crore. And average cost per employee worked out to Rs.6.52 Lacs. It is 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.

Analysis of Results Achieved by State Bank of India

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%
Analysis of the Merits of the Decision of VRS Optees who Preferred to leave -
A Review of their Post VRS Prospects

This is a draw back in the planning details of the scheme. A Lakh and more of skilled and trained employees have been drawn away from the banking system. No doubt they are given fair compensation. But these employees are mostly from the middle class families. They are accustomed to live under a monthly budget based on a recurring income. Could they now switch to the use of a single seed capital and spread the benefits throughout their remaining tenure of life, which on account of early retirement would be more than the period of normal retired life of their counterparts superannuating in the usual course at their attainment of the age of 60. Were they to spend away or blindly invest the amount yielding a poor return or quick depreciation their lots will be unenviable. Throughout their remaining life they will be blaming themselves for having made an improper and hasty choice of accepting VRS.

This is the first batch of bank employees numbering 1 lakh and odd. Further streams from the Government and other Public Sector organizations are to follow. How to link these persons with talent and experience to productive use in the national economy?

What all that need to be done to the employees is proper counsel and guidance for a fresh career planning. They need to re-train and better equip themselves suited to the future needs of the banking and financial sectors. A percentage of future recruitment could be planned from this channel. What all they need is only by way of concession in the eligibility criteria relating to age limit. This could have been considered. A condition can also be imposed that if they are re-employed their fresh salary plus pension should not exceed the ceiling of pay for that cadre. They also need counsel how to best invest the amount of terminal benefits received so that it remains safe and secure yielding a regular income over the years.

An Objective Assessment.

VRS is the first step towards the rationalisation process to adopt banks to confirm to the post reform ethos of banking. Banks have to complete computerisation of operations as per programmed phases. Better selection, training, placement and promotion policies need to be evolved. The wage structure in particular in the senior levels be such that it is comparable to what is prevalent in the well managed private sector companies and able to attract the best talent to banking fold. Small and unviable units have to merge with better ones. Individual banks should start economic and banking research cells. Better transparency and corporate governance need to be accepted by PSBs to secure investor confidence. In short each PSBs by itself should become dynamic and self-reliant and compete with other units and with the units in the private sector. Change is a continuous process. The PSBs have accepted the philosophy of change and self-reliance. The future holds the answer and prospects are that the country will have the best in banking at par with global standards in the years to come. Despite obstacles, the miracle of reforms, the market forces, in particular the competition from private banks and urge to survive will be the directing forces to usher the change towards the better. There was quantitatively a sea change in Indian Banking of year 1980 from that, which existed in 1960, i.e. 10 years after nationalisation. Much more transformation both quantitatively and more so qualitatively can be seen in the year 2010, i.e. ten years after VRS.

Salient Features of Voluntary Retirement & Sabbatical Scheme:

View List of Articles - Projects on Indian Banking

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