It is a known fact that in India getting rid of surplus or no-longer-needed employees is a task easily said than done. It is possible to terminate a CMD or any other director of a bank, but not an staff-member covered under a Trade Union or the Industrial Disputes Act. In this prevailing environment the fact that PSBs have been able to dispense with a significant percentage of their redundant workforce within a short period of seven months during 2000-01 is a marvelous feet, with no parallel in recent history of Public Sector Enterprises.

The main objective of VRS, other than the oft quoted downsizing and bringing down the cost of operations (intermediation cost) in the public sector banks, is the acceptance of the ground reality that the banking of New Millennium is more technology based than people based. By the end of the first decade of the New Millennium, the public sector Banks will not be needing their entire clerical workforce along with the first line supervisory officers, as their functions will be (and has been) taken over by technology. Besides, as the systems and work technology would also change, there will be no need of the Subordinate staff. Their functions can either be outsourced or taken care of by changes in the systems, procedures, and working styles.

According to Indian Banks' Association (IBA), the total staff strength in public sector banks at the end of March 2000 was 8,63,188 out of whom 1,26,714 or 14.7 per cent applied for VRS. About 80 per cent of the number of applications were accepted, and the staff relieved under VRS until December 31,2001 were 1,01,300. This constituted 11.7 per cent of the total staff strength at the end of March 2000.

The Public sector banks are clearly over-weighed. The wage bill constitutes the second largest expense for the banks apart from the interest paid on borrowings. These banks had recruited many employees at the clerical level which involves routine jobs with no specialized skills. With the technology coming in and replacing these employees, the staff became redundant. Technology not only reduced the cost of operations but also spared the management from the problems and strikes posed by the employees. The statistics on human redundancy and productivity are shocking.

According to the Verma committee report, staff cost as the percentage of operating incomes is as high as 108 percent in Indian Bank, 76 percent in UCO Bank and 80 percent in United Bank as compared with the ratio of 47 percent in the PSU banks. The FICCI study used the benchmark of Rs. 125 lakhs BPE (Business per Employer) and points out that 22 percent of the bank employees in 16 public sector banks are redundant. SBI needs to reduce the staff strength by 57,978 to attain a Rs.125 lakhs BPE. Bank of Baroda, Corporation Bank, Dena Bank and Oriental Bank of Commerce have achieved the Rs.125 lakh BPE registering higher profit per employee. The establishment cost is also very high at 20.13 percent in nationalized banks compared with the 7.66 percent of the foreign bank and 3.04 percent of private banks. Though there was some improvement in the past 4 to 5 years due to competition from the private and foreign banks, the ratios are not comparable to the international standards. The wage bills as a percentage of total assets declined during the period from 2.05 in 95-96 to 1.66 in 1999 - 2000. Banking being a service sector industry, productivity of the staff has a significant bearing on the banks overall performance. Profitability based indicator- the profit per employee of public sector banks witnessed a significant rise between the period 1996-97 and 1999-2000. It rose from about Rs.35000 per employee to about Rs.65000. Foreign banks are a way ahead in this respect with a profit per employee at around Rs. 700,000 per employee.

Cost of intermediation ratio is the crucial measure of efficiency. VRS comes at a time when the banks are showing marked improvement in efficiency. The recent currency and finance report published by the RBI was all praise for the improvement in efficiency in banking sector. Despite the competition with numerous players in the field, the banks were able to maintain the profitability levels by reducing the cost. Going into the details, the cost of intermediation (operational expenses to the total working fund) has come down from 2.94 percent in 1995-96 to around 2.49 percent in 1999-2000 for the scheduled commercial banks. The new private sector banks also cut the cost of intermediation from 1.89 percent to 1.42 percent. An effective reduction of about 25 percent. The only exceptions were the foreign banks, which could not reduce their intermediation cost. However, these ratios are nowhere near the international levels. These ratios have been falling internationally due to technology up gradation and improvements in system and product innovation.

VRS is but the beginning of a crucial process. Positive results can accrue only through pragmatic follow-up steps implemented by individual banks in the Post-VRS period. The management should instill confidence in the employees who did not opt for the VRS. With the chain of command and the organization structure completely dislocated due to exit of employees across the board, the management should reconnect the organization hierarchy. Some of the unprofitable branches will have to be closed, as a further process of rationalisation. Promotion and redistribution of work should take place. Training should be given to increase the overall productivity. With the large number of employees taking VRS the productivity will increase though the efficiency would not go up immediately. The banks should take up effective manpower planning with a lot more training. At the same time, computers should be installed. Routine and unskilled jobs can be outsourced. As technology slowly replaces the unspecialized jobs, the process of showing the door to the employees does not arise if outsourcing is done.

The public sector banks are also now given autonomy to recruit employees. The finance minister in the recent budget has abolished the Banking Services Recruitment Board (BSRB). This has given the banks freedom and flexibility to have their own recruitment policy. This will reduce the cost and the time of recruitment and at the same time opportunity to recruit quality staff from some of the premium institutions. This will enable people with skill and the ability, who could take voluminous work, to join banks. BSRB was set up about 20 years ago to streamline and have uniform recruitment procedures across the PSBs. However, this method of recruitment has become redundant. Most of the private and foreign banks opt for the cream through campus placements.

A recurring theme in the annual BECON Conference has been the need to focus on developing human resources to cope with the rapidly changing scenario. The core function of HRD in the banking industry is to facilitate performance improvement, measured not only in terms of financial indicators of operational efficiency but also in terms of the quality of financial services provided. Factors such as skills, attitudes and knowledge of personnel play a critical role in determining the competitiveness of the financial sector. The quality of human resources indicates the ability of banks to deliver value to customers. Capital and technology are replicable, but not human capital which needs to be viewed as a valuable resource for the achievement of competitive advantage. The primary emphasis needs to be on integrating human resource management (HRM) strategies with the business strategy. HRM strategies include managing change, creating commitment, achieving flexibility and improving teamwork. These processes underlie the complementary processes that represent the overt aspects of HRM, such as recruitment, placement, performance management, reward management, and employee relations. A forward looking approach would involve moving towards self-assessment of competency and developmental needs as a part of a continuous learning cycle.

This gives the backdrop. A comprehensive analytical article on VRS ensuing in the next three pages is contributed by Ms.K.R.Chitra, a student of M.Phil of Kerala University.