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PSU Banks: After Mega-Mergers, Will The New Coalition Govt Reform Hiring, Pay Packages?
Competitive salaries, performance-linked incentive schemes, out-of-turn promotions, and lateral hiring from the private sector and reputed business schools may be on the cards for the public sector lenders

Mahua Venkatesh
Jun, 13, 2024 · 4 min read

The mega consolidation exercise of the public sector banks – currently the number stands at 12 –has been one of the key highlights of the NDA 2.0 government. Undoubtedly, the exercise has yielded results. The combined net profit of the public sector banks stood at Rs 1.4 lakh crore in 2023-24 —a jump of more than 30 per cent compared to the previous financial year.

While official sources indicated there will be no further mergers of public sector banks, addressing the shortcomings of human resources and talent acquisition, which would basically imply extensive reforms in a sector dominated by powerful unions, could be the new focus for the coalition government.

Salary correction, performance-linked incentive schemes, out-of-turn promotions, and lateral hiring from the private sector and reputed business schools may be on the cards for the public sector lenders. “These issues have been discussed for years but no concrete step has been taken. The new government needs to look at the HR aspect of the state-owned banks and take measures. However, how far these issues can be taken up is a question since a coalition government has its own dynamics,” a senior public sector bank official told The Secretariat.

With the coalition form of government, the voice of the unions may get amplified once again.

A shortage of well-qualified staff has been plaguing these banks. In the wake of emerging challenges related to artificial intelligence, expanded digital framework, cyber fraud, and climate change, the shortage of well-qualified staff has become even more pronounced. The continued shortage of workforce could even undo the current gains of these lenders.

Due to lower pay packages and pay parity, attrition is another challenge that these PSBs would have to address.

Take the example of Dinesh Khara, chairman, State Bank of India—the country’s largest lender. Khara received an annual salary of less than Rs 40 lakh for the financial year 2022-23. Any mid-level executive of a private sector bank would be drawing home a higher salary.

“These issues need to be addressed and this area should be kept in focus,” Ashvin Parekh, financial services sector analyst and managing partner APA Services said, adding that the disparity is even more prominent for the mid-level staff.

Such disparity does little good for the country’s state-owned lenders. “This is rather sad and many of the PSB chiefs after retirement get appointed on various boards as independent directors. This goes on to reflect that they are otherwise competent and qualified but it is just that they are not rewarded adequately while they serve the PSBs,” Anil Khandelwal, former Bank of Baroda chief who was also part of the erstwhile Bank Board Bureau said.

Khandelwal felt that individual lenders must have the freedom to carve out their own compensation and benefit plans. “If the public sector banks want to compete with their private sector peers, they need to be able to frame their remuneration, pay hikes, and benefits plans depending on their own balance sheets and performance,” he said, adding that the negotiations on wage revision should be restricted only for the clerical staff. Khandelwal, who earlier chaired a committee on PSB HR practices, also said that it is important for banks to create their own work culture.

The Reserve Bank of India data showed that as of March 2023, the total employee strength for PSBs stood at 756,000 compared to 745,000 in private sector banks.

The Institute of Banking Personnel Selection (IBPS), which conducts the hiring exercise, announced 4,336 vacancies for officer level posts and more than 12,000 clerks in 2019. However, the number, as put out by IBPS, has been shrinking. In 2021, the number was 1,417 for POs and 7858 for clerical staff. In 2022, the requirement for POs went up to 6,932 but for clerical staff, it was just about 6,000. The data does not capture hiring by the State Bank of India and the regional rural banks. SBI conducts its own hiring.

CH Venkatachalam, general secretary, All India Bank Employees Association (AIBEA) added bank branches in the smaller towns and rural areas are still grappling with the use of technology, banks need trained people but their hiring is going down. “A large number of the vacancies are being filled up with temporary staff even as mega government schemes such as Pradhan Mantri Jan Dhan Yojana are being handled by the bank staff,” he said.

An overhaul of HR practices with the focus on improving competitiveness is the need of the hour. Regular training programmes to upskill the employees need to be undertaken as well. But the moot question – will the NDA 3.0 have the required teeth to carry on the necessary reforms?