Voluntary Retirement Scheme is a unique initiative and a bold attempt to accomplish an extremely complicated and arduous task, that of sending home over a lakh of serving bank officers and employees, who formed part of these banks all the years, (extending fifteen or more), without creating least dissatisfaction to the affected employees or spreading an industrial unrest in the Banking Industry. In short the PSBs are not compelling any specific employee to leave service, but in the reverse process the employees willingly come forward attracted by the liberal provisions of the scheme and opt to retire from service voluntarily without any pressure being exercised on them by the management. It is retrenchment in effect, but without pain and anguish to those retrenched.

It was implemented in the first stage by 26 out of the 27 PSBs, with the sole exception of Corporation Bank. The VRS scheme of SBI or SBT, is not different from the rest of the PSBs in terms of the basic content of the benefit-package or other terms offered. But in view of different size and culture of the individual PSBs the variable features are mainly in the manner of response that the scheme received from their respective employees. Thus everything of the core elements of VRS as recommended by the Government are common and applicable in toto to the schemes sponsored by all the PSBs including SBI and SBT. It has therefore become necessary to study the background of the circumstances leading to floating of VRS scheme by the Government-owned banks, which constitute of 80% of the banking system in India.

While presenting the factual data about VRS programmes acclaimed universally as having been successfully implemented by the PSBs, an attempt is made to critically analyse and assess the scheme from different perspectives relating to the fulfillment of its conceived objectives, the implementation strategy adopted, the post VRS scenario in the banks, and a study of the wisdom and merits of accepting VRS by about a lakh of bankmen in terms of their own future prospects. They have discounted years of future cash flows assured and inherent in continued service with the bank, for the instant benefit of a lump-sum bargain. Is it a wise step beneficial to them in the long run or have they out of greed cut the goose that was laying one golden egg per day in the fond hope of getting all at once? This is attempted to be answered in this treatise.

The study is made under the following table of contents.

1. Rationale of the Philosophy of VRS

2. The Industrial Culture & Labour Legislation of India

3. The need and urgency for PSBs to downsize their work-force

4. Methodology of planning and designing the scheme

5. The Economics of the Scheme

6. How the scheme was implemented by PSBs in General and by SBI and SBT in particular

7. Merits of VRS as a strategy towards manpower planning

8. The Shortcomings of the scheme in perception & implementation

9. Analysis of the merits of the decision of VRS Optees who preferred to leave -A review of their Post VRS prospects

10. An objective assessment of Scheme

Voluntary Retirement Scheme (VRS) more appropriately stated as Voluntary Early Retirement Scheme is an innovative concept evolved in India in the post Economic Reform Environment. The Scheme was initially implemented in the financial year 2000-2001 by public sector banks. VRS is an attempt to synthesize an operation aimed towards downsizing the work force of Public Sector Banks, with employees' willing acceptance and participation. In other words it is retrenchment without tears. A very attractive package of terminal benefits and compensation favourably motivated employees in large numbers to voluntarily seek early retirement and leave bank service, thus realising the objective of the Banks to shed part of the surplus manpower and become leaner. The initial experience gained in VRS scheme operated by the Banks has enabled the Government to extend the methodology to a wider scale in the subsequent period and to accomplish the process of ratonalisation of manpower and shedding excess flap in other Public Sector Undertakings and in the Civil Services of the Government Departments, all of which have become overcrowded with heavy surplus workforce, consequent to the rationalization of systems and procedures in the post Reform period shedding a host of redundant controls and restrictive provisions, transferring several functions hither to performed by the Government to private enterprise, and switching over to computerised operations every where, rendering huge workforce manually carrying on these operations redundant. The result is a high cost wage component with low productivity, and making Indian Industry and business less competitive in the global market. It is an anomaly that the Indian worker is paid comparatively low scales of wages, while the employers are suffering from a high cost of labour content in their cost structure. It is the number employed that creates the situation of low wage and high cost. Thus both the worker and the business/industry stand to benefit by ratinalisation of work force and improving productivity.

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.

At an industry-level, while 27 per cent (64,327) of the total of 2,38,116 officers have opted for the scheme, only 11 per cent (49,010) clerical staff, out of 4,33,666, and 7 per cent of sub-staff (12,945) out of 1,91,335, have sought VRS.

Public Sector Banks incurred an expenditure of approximately Rs.10,000 Crores to dispense with the services of the one lakh and odd officers and employees. They have obtained the permission of the Government and followed guidelines as per scheme formulated by the Government of India, the outlines of which are given in the Annexure.

Why such an elaborate system and why the Public Sector banks are forced to downsize their work force by such a steep level? Banks are service providing institutions. They recruit employees initially incurring considerable cost, and subsequently have to train them for several years continuously. At clerical level an employee needs six months training, while an officer at a junior level is given training on direct recruitment for three years. It may need for such an officer another 5 years to be eligible to become a branch manager and so on for different higher positions, most of which are filled through internal promotions. All these involve huge expenditure. Banks pertain to the category of service industry providing a specialised professional service. Its main stock-in-trade is expert knowledge, an intangible asset. This prime asset of the Banks is not stored in its show rooms or in godowns, but rests with its officers & employees. A part of the same may be structured and retained in instruction manuals, guidelines and job charts, but predominantly it rests with the employees, who are repositories of its knowledge-wealth. A huge turnover of skilled and trained employees at a point of time from an institution will disrupt its normal working, in addition to the loss of heavy resources already spent on their recruitment and elaborate training incurred under the consideration that their service will be continuously available for the full term or entire span of their career. Before first analysing this, it is more useful to trace the industrial environment and policy towards retrenchment of labour in India.

A relevant issue that comes to the fore is about the need or justification to offer a heavy monetary package to the employees as an inducement to accept VRS. In the normal course if an employees offers to resign and quit service, he is paid the conventional terminal benefits that is due to him. But under VRS each employee has been paid an additional amount around Rs.6 Lacs (the industry average) over and above such terminal benefits. Is it necessary to pay employees huge compensation for retrenching them from service, a package that included compensation at four times the normal rate (60 days per year of completed service as against 15 days prescribed under law)? Why this bounty? Will this not cripple the already over-burdened revenue resources of the PSBs?

As per service regulation governing officers of Government owned banks, "the bank may terminate the services of any officer by giving him three months' notice in writing or by paying him three months' emoluments in lieu thereof". This normally is the course followed by global corporates in western countries. But in India though embedded in the contract of service, this happens to be a dormant provision never taken recourse to because of the legal umbrella or cover to the employees by the Government as part of its benevolent labour Policy of protecting employment and workers in the country.

India, our country is a welfare State. While public servants in India as a rule are subject to strict discipline and conduct regulation, Governments (both at the Centre and the States) and Public Corporations have the responsibility to act as model employers and look after the welfare of those serving the civil services and public services and several Organisations and Institutions under the financial control of the Central and State Governments. Indian government, therefore, follows a policy for protecting the interests and promoting the welfare of labour. The Constitution of India contains a chapter on Directive Principles of State Policy . Article No.38 deals with and titled - "State to secure a social order for the promotion of welfare of the people" and further states that "The State shall strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which justice, social, economic and political, shall inform all the institutions of the national life." In the spirit of this accepted goal, the Government of India has accepted a progressive labour welfare policy.

Central Government has a Labour Ministry headed by a Cabinet Minister to look after the welfare of Labour both in public and private employment. Government of India has enacted several welfare and ameliorative legislation to protect and ensure the rights of workers like Industrial Disputes Act 1947, Indian Trade Unions Act 1926, Industrial Employment (Standing Orders) Act, 1946 etc. All these enactment confer protective rights to the employees both in public and private undertakings.

As a result of the benevolent policy of the government towards organised labour, termination of employees for whatever reason is a time consuming process in India. The Industrial Disputes Act, one of the key pieces of labour legislation, makes it mandatory for every firm employing more than 100 people to seek government approval before retrenching or effecting closure. The Act provides strict rules for layoff, retrenchment and compensation. No employee in any industrial establishment who has worked for more than one year may be retrenched without being given one month's notice in writing indicating the reasons for retrenchment. The employee is also entitled to compensation equivalent to 15 days' pay for each year of service completed. The dismissal of workers may be contested through a petition to the government and can lead to a time-consuming process of negotiation. In practice, termination of employees is rare except for cases of proven theft or embezzlement of company funds and other acts of serious misconduct. Even here an elaborate quasi-judicial procedure has to be following allowing the employee to represent his side of the case in his defence.(Government has since amended this legislation by exempting units employing up to 1000 people, but also increasing the compensation payable from 15 days to 45 days' pay for each year of completed service)

Bank officers and employees are organised under powerful trade unions. In the normal prevailing ground situation reducing work force on such a magnitude is impossible. Banks have therefore opted the choice of Downsizing with dignity and with workers consent. It is sometimes termed as the "Golden Handshake".