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India PSU banks
Meeting with IBPS director: HR issues
Event
We met Mr. Balachandran (ex CMD of Bank of India), who is now the director
of IBPS (Institute of Banking Personnel Selection). IBPS is the nodal agency
for recruitment of state-owned bank employees. The governing board of IBS
consists of nominees from RBI, Ministry of Finance and representatives of
public sector banks. The key message was that over the next five years there
is likely to be a huge shortage of staff amongst PSU banks, coinciding with
the retirement of many senior personnel.
Impact
Large-scale recruitment likely in PSU banks: Currently, Indian banks
employ close to 1m people. Of these, around 0.75m are employed by the
public sector banks. IBPS estimates that PSU banks will have to recruit about
0.6m people over the next five years and that there will be a situation where
the banks will have only about 40% experienced staff. PSU banks stopped
recruitment during the early part of the decade as they adopted
computerisation, which reduced the need for incremental manpower;
furthermore, there was very little branch expansion during the period.
However, with increasing financial inclusion obligations, coupled with
increasing competition and the need to explore more areas, PSU banks have
now embarked on an expansion drive, which entails significant recruitment.
Top-level management retirement is a worry: As per IBPS’s estimates,
close to 0.1m employees of PSU banks will retire by 2015. These are
seasoned, experienced people, of whom around 7% would be in executive
grade. Nearly 40–50% of PSU banks’ general managers are due to retire over
the next few years, so there is likely to be an acute shortage at senior levels
of management. This bunching up of retirement over the next few years is
because PSU banks recruited in large numbers following banks’
nationalisation in 1969 – and these managers are now due to retire after
serving for 40 years.
However, there is now some flexibility with respect to hiring: PSU banks
have started lateral hiring for senior-level management (AGMs and DGMs) to
address the acute shortage of talent at the top level, though they continue to
choose personnel at ED and CMD levels internally. Also, PSU banks are now
allowed to recruit on a contractual basis at market-linked salaries (subject to
the approval of their respective boards) for specialist functions such as risk
management and treasury. PSU banks have also started giving fast-track
promotions (as opposed to the earlier practice of basing promotions strictly on
tenure).
Outlook
Opex pressures likely to increase; productivity benefits likely to decline:
We believe PSU banks enjoyed enormous productivity benefits over the past
decade due to low recruitment, steady pace of retirement and lack of
aggressive expansion. This phase is now over, in our view, and incrementally
productivity benefits are going to be lower. Hence, we believe the cost-toaverage-
assets ratio, which has been declining, is close to bottoming out, and
we expect some secular increases going forward. We maintain our near-term
cautious stance on PSU banks.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India PSU banks
Meeting with IBPS director: HR issues
Event
We met Mr. Balachandran (ex CMD of Bank of India), who is now the director
of IBPS (Institute of Banking Personnel Selection). IBPS is the nodal agency
for recruitment of state-owned bank employees. The governing board of IBS
consists of nominees from RBI, Ministry of Finance and representatives of
public sector banks. The key message was that over the next five years there
is likely to be a huge shortage of staff amongst PSU banks, coinciding with
the retirement of many senior personnel.
Impact
Large-scale recruitment likely in PSU banks: Currently, Indian banks
employ close to 1m people. Of these, around 0.75m are employed by the
public sector banks. IBPS estimates that PSU banks will have to recruit about
0.6m people over the next five years and that there will be a situation where
the banks will have only about 40% experienced staff. PSU banks stopped
recruitment during the early part of the decade as they adopted
computerisation, which reduced the need for incremental manpower;
furthermore, there was very little branch expansion during the period.
However, with increasing financial inclusion obligations, coupled with
increasing competition and the need to explore more areas, PSU banks have
now embarked on an expansion drive, which entails significant recruitment.
Top-level management retirement is a worry: As per IBPS’s estimates,
close to 0.1m employees of PSU banks will retire by 2015. These are
seasoned, experienced people, of whom around 7% would be in executive
grade. Nearly 40–50% of PSU banks’ general managers are due to retire over
the next few years, so there is likely to be an acute shortage at senior levels
of management. This bunching up of retirement over the next few years is
because PSU banks recruited in large numbers following banks’
nationalisation in 1969 – and these managers are now due to retire after
serving for 40 years.
However, there is now some flexibility with respect to hiring: PSU banks
have started lateral hiring for senior-level management (AGMs and DGMs) to
address the acute shortage of talent at the top level, though they continue to
choose personnel at ED and CMD levels internally. Also, PSU banks are now
allowed to recruit on a contractual basis at market-linked salaries (subject to
the approval of their respective boards) for specialist functions such as risk
management and treasury. PSU banks have also started giving fast-track
promotions (as opposed to the earlier practice of basing promotions strictly on
tenure).
Outlook
Opex pressures likely to increase; productivity benefits likely to decline:
We believe PSU banks enjoyed enormous productivity benefits over the past
decade due to low recruitment, steady pace of retirement and lack of
aggressive expansion. This phase is now over, in our view, and incrementally
productivity benefits are going to be lower. Hence, we believe the cost-toaverage-
assets ratio, which has been declining, is close to bottoming out, and
we expect some secular increases going forward. We maintain our near-term
cautious stance on PSU banks.
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