Is it time for state-run banks to end industry-wide wage pacts?

“There’s nothing more unequal than the equal treatment of unequal people,” Thomas Jefferson, the third President of the United States, famously said.

Early talks have started for hammering out the 12th bipartite settlement between the Indian Banks’ Association (IBA) and bank unions. But more than half a century after industry-wide wage pacts for state-run banks came into effect from April 1, 1966, a fresh approach is needed.

Over the past decade, the banking topography has completely changed — private banks’ share of both incremental credit and deposits is on the rise, and technology is reshaping the way banks intermediate. While state-run banks may have been a much sought-after career destination three decades ago, this no longer holds true.

The organisational aspect is as follows.

There was massive intake of staff between 1969 and 1984 to create a large branch network. Later, up to 2000, there was little by way of fresh hiring, as the emphasis was on officer-level posts being filled by promotions from the clerical cadre. In FY02, a voluntary retirement scheme was offered to those who had put in 15 years of service; it saw two lakh state-run bankers bid adieu (in itself, a telling comment.) This opened the promotion window, and soon, recruitment resumed even as it led to two dominant demographics: the 50-plus and the under-30s.

Talent from state-run banks — especially those with marketing and technology skill-sets — is being wooed by private and foreign banks, the better among the non-banking financial companies, fintech firms, and even e-commerce firms and telcos.

Again, no sizing-study has been done after the report by the A K Khandelwal Committee on state-run banks’ human-resource issues (2010), which had warned of the twister in store. “Over the next five years, 80 per cent of general managers, 65 per cent of deputy general managers, 58 per cent of assistant general managers and 44 per cent of general managers would be retiring. The pool of these experienced executives cannot be replaced only through promotions,” the committee noted.

For instance, in FY10 when the State Bank of India embarked on a huge financial inclusion drive, 18,931 walked in for 25,327 clerical posts, but only 5,728 remained at their desks by the end of the year. This was not a one-off, but a trend: it was 25,735, 30,231 and 3,834 in FY09; and 4,012, 5,638 and 1,462 in FY08. Granular data of this kind is not available in the public domain, but there’s no reason to believe that many more will continue to stay at their desks.

There’s also another variable at play here. The report of the P J Nayak Committee to review the governance of bank boards (2014) made a reference to the pay of corner-room occupants in state-run banks vis-à-vis their private bank peers. “It is unsustainable for such differentials (salary) to continue without any adverse impact on the recruitment and retention of talented managers (in state-run banks)”, it noted. While the reference was to the pay of chief executive officers between the two classes of banks, the same can be extrapolated across all levels.

But the irony (according to the Report on Trend and Progress of Banking in India 2021-22 released last week) is that the cost-to-income ratio — which is the ratio of operating expenses to operating income — was the highest for state-run banks, owing to their high wage expenditure. Again, with capital quoting at a premium (and recapitalisation of state-run banks a thing of the past), the urgency for a harder look at human-resource issues is needed.

There’s also been a material change on the ground. The government’s decision to merge four sets of state-run banks, effective April 1, 2020 —  Punjab National Bank, Oriental Bank of Commerce and United Bank of India; Canara Bank and Syndicate Bank; Union Bank of India, Andhra Bank and Corporation Bank; and Indian Bank and Allahabad Bank. It marked the biggest such move anywhere in the world, rearranging 25 per cent of systemic banking assets in a single shot.

Having merged to create larger entities with improved financials, will these entities now opt to break out of industry-wide wage pacts?

Even when the 11th bipartite settlement was in the works, this issue had raised its head. On what parameters are staffers across banks with different business and cultural orientations to be evaluated? While a staffer may have been a top performer at a bank prior to the merger, it might not be the case in the merged entity, as standards would differ. It was speculated that banks would have to strike some middle ground to evaluate performance as it stood, and craft a new human-resource policy going ahead.

While there is still a large talent pool in state-run banks, the reality is that it may not walk in as in the past. Lateral recruitment may have to be increased. It was the late K C Chakrabarty (a former deputy governor of the Reserve Bank of India), who said: “You need to manage people — and for this you need to discriminate between them. I mean positive discrimination.” That time may well be upon us.