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The great managerial deluge

Tamal Bandyopadhyay & Poornima Mohandas | July 07, 2005

Call it the first flush of freedom if you will. Now that public sector banks no longer have to follow rigid government rules on promotions (between five and seven years mandatorily separated each rung in the bank's hierarchy), they are working overtime to frame new HR policies in order to reward performers.

Since the pay structures still remain constrained by the industry-wide wage pact that is brokered by the Indian Banks Association -- and does not distinguish between the payment capacities of strong and weak banks -- a few banks have come out with variable performance-linked pay for senior management.

Last week, Bank of Baroda held a press conference to announce its plan for a performance-related pay packet for about 2,800 of its officers.

State Bank of India went one step ahead and introduced an incentive scheme for its branch managers, division heads and regional managers.

These officers can now earn an extra Rs 45,000 to Rs 50,000 annually if they achieve their performance targets.

Once the BoB proposal gets the board nod, the branch managers of its 2,700-odd branches, 50 regional managers and over 15 zonal managers and general managers will get a share of the bank's profits.

"We want to first reward the staff whose work can be measured," says BoB chairman A K Khandelwal. BoB has also stepped the gas on fast-track promotions for its officers. "Assistant general managers have been promoted to deputy general manager level after serving for just one and a half-years in the post of AGM," points out Khandelwal.

Seven general managers and 16 deputy general managers have made it through the fast-track route this year.

State Bank of India, too, has introduced an incentive scheme for its branch managers, division heads and regional managers. They can get as much as Rs 50,000 a year if they are able to achieve the targets in terms of deposit mobilisation, credit disbursement, reduction in bad loans and so on.

The bank has divided its 9,000-odd branches into four categories (A,B,C and D), depending on business targets. At the second stage, employees of its corporate office will be covered by the incentive scheme.

The two examples just cited, however, just represent one side of the public sector banks' managerial autonomy story. There is another side too.

Two public sector banks, and ones that aren't exactly great performers either, have reportedly more than doubled the number of senior executives -- general managers and deputy general managers -- ever since the government has given the industry a free hand in such matters.

One of these two banks, a relatively small and not-so-strong one, now has as many general managers as its big compatriots and even more deputy general managers than it actually requires.

In the case of one bank, the number of general managers has risen from seven to 19. The bank now has over 40 deputy general managers, which its business profile can hardly justify.

The other bank, based in the same region, has also increased the bulk of the senior management substantially.

Yet another bank, in a different region, has raised, by several times, the quantum of "compassionate" money to be given to an employee's family in case the employee dies and allowed liberal allowances to a very large number of employees.

Enlightened HR policies, it is obvious, are the need of the day since shortage of top quality personnel is a serious issue.

The problem, however, is that with a few exceptions, it doesn't look as if banks are paying serious thought to the issue.

In the case of the two banks that rapidly increased their managerial strength overnight, the largesse was something doled out by departing chairmen, and okayed by rubber stamp boards -- in any case, apart from the chairman and the executive director, bank boards always have two representatives of the staffers, one for the officers and one for the non-officers.

Under the freedom package approved a few months ago, PSU bank boards were to get the freedom to carry out their functions efficiently without any impediment, subject to statutory requirements (like statutory liquidity ratio, cash reserve ratio, and so on), government policies (on foreign holding for instance) and regulatory guidelines (on directed lendings, rural branches, among others) of the Reserve Bank of India.

PSU banks now have the freedom to pursue new lines of business; make suitable acquisitions of companies or businesses, close/merge unviable branches; open overseas offices; set up subsidiaries and exit an existing line of business.

They also have the last word on all HRD issues including the staffing pattern, recruitment, placement, transfer, training, promotions, and pensions.

They can prescribe essential academic qualifications, minimum qualification standards and modalities of promotion/recruitment in various categories and lay down policy of accountability and responsibility of their officers.

The senior management team is free to travel overseas to interact with investors, depositors and other stakeholders.

Stronger banks (with a capital adequacy ratio of 9 per cent or more, NPAs of under 4 per cent and a three-year net profit record and minimum owned funds of Rs 300 crore), enjoy additional autonomy for framing their own HR policies.

They can create additional posts of general managers and introduce performance-linked pay packets for their employees. They are also free to decide on contributions to be made to the staff welfare fund.

While it is early days yet, senior bankers are of the view that some steps need to be taken to ensure that PSU banks don't go overboard in their compensation packages.

One way out is to create benchmarks for all departments, which can be a basis for rewarding the staff. A bond dealer's contribution to the bank's bottomline is easy to measure as he makes or loses money almost everyday.

A consultant can develop performance benchmarks for every department. For instance, a credit officer can be rewarded on the basis of loan growth and quality of loans while a branch manager can be gauged by his efforts for deposit mobilisation and a recovery officer is as good as the bank's recovery of NPAs.

Even technology staffers can be judged by the speed with which a bank is able to put in place the core banking solution in its branches.

Another possibility is to introduce the concept of a probation period for general managers and deputy general managers. If their performance is not up to the mark during this period, they should not be confirmed at a higher position.

Finally, if the autonomy package is not to be abused, the government must ensure that a bank's board is strong enough to withstand the pressures from the trade union representatives and ensure that compensation packages don't go overboard, especially on the whims of outgoing chairmen.

If banks are to retain their new-found freedom, they too will have to learn to use it diligently.

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