Experts debate report on attrition, productivity in banks

The Federation of Indian Chambers of Commerce and Industry (Ficci) and the Indian Banks' Association (IBA) have organised a conference scheduled to begin on Tuesday. Among other issues on the agenda, representatives of the banking sector will also discuss a report submitted by the Boston Consulting Group (BCG) regarding customer-centricity and employee-productivity.

Also read:  SBI revises interest rate on FCNR(B) deposits
On the eve of the conference, Alok Kumar Mishra, chairman and managing director, Bank of India, Pratip Chaudhuri, chairman, State Bank of India and Saurabh Tripathi, partner and director, BCG Group explain to CNBC-TV18 the various aspects of the report and offer a glimpse of the issues that will be discussed at the convention. Below is an edited transcript of the discussion on CNBC-TV18.    Q: How do Indian employees compare in terms of productivity and how do think productivity can be enhanced? Tripathi: Compared to the global benchmarks, Indian banks are doing very well. Our cost -income ratios are the better that others across the globe and by that logic, our employees are doing quite well, given the relative robustness of Indian industries.
Now the point that we are making in this report is that to create very low-cost banking solutions for excluded customers in India, we need to really look at our own benchmarks and plan to achieve higher levels of productivity in order to be able to create sustainable inclusion and to that extent, we have to ask for more from our employees.
What are the incentives? We have actually put out a few ideas in this report as to how the large number of people who have been recruited into the banking industry can be made highly productive in the shortest period of time possible.
At the same time there is a very high level of attrition in private sector banks and this trend is expected to be followed in public sector banks after some time. We have submitted suggestions on how we can actually retain people and provide them a career path to increase their productivity.
Lastly, the report has highlighted how technology can be used in every aspect of the organisation, to make employees more efficient and make their lives more productive. Q: It is flattering to know that the productivity of the Indian employee is high, but the report says that while attrition is very high in private sector banks, it is not so high in public sector banks. Is this largely because public sector banks don’t follow a hire-and -fire policy? There is this huge challenge of manpower because a large number of middle -level management executives are retiring. Do you seek any liberal recruitment rules to get more lateral talent? Chaudhuri: I think it is a bit of both - because in private sector banks, accountability in terms of performance especially at the junior level is very high, whereas in the case of public sector banks, accountability and measurement of performance begins from the level of the branch manager onwards. There is very little measurement of performance of individual employees at the branches.
Attrition of this kind is witnessed in the earlier stages of expansion. When an employee is posted at Mumbai, he or she is very happy. But the day you tell them that they have to relocate to Surat or Nashik, is when the attrition occurs.
In our case, we have crossed that stage, but we still find that when we try to push a staff-member beyond a point, there is attrition. In our case since there is very little lateral recruitment, so that is why the attrition is only at the end of a career that spans 30 - 35 years. There is very little attrition at the middle-level or at the officer-level. There is attrition among those who have been hired laterally. Q: Are you expecting the government to make the rules any more liberal? Do you see that as a possibility of increasing your output per employee? Chaudhuri: No, not particularly. The government has not placed any restrictions on lateral recruitment. Today, if we want to recruit heads for our legal, loans, and investment departments, we have all the freedom to do so. So, I would not blame government with regards to lateral recruitment. We have realised that a high degree of lateral recruitment brings disappointment and frustration to the existing cadres. Lateral recruitment has to be done with a lot of care and except for specialist positions, it has not worked very well. Q: The BCG report says that banks have to invest more in technology. You are strapped for capital, you have to meet Basel norms and attend increasing NPLs created by a slowing economy. Do you think Indian banks will have the money to invest in technology in the days to come? Mishra: Surely. There is no choice but to invest in technology. The increase in the volume of business and opportunities, can be only met through technology. Business per employee which was about Rs 1 crore in 2001 is over Rs 13-14 crore and business per branch which was Rs 20 crore in 2001 is over Rs 150 crore.
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In the last three years, my bank has added 20 million more customers. I can cope with this only if I invest in technology. It is not a question of having the funds or not. When you are making profit, it is imperative that you invest in technology. Q: Is that true? Do you think profitability will not be impaired? You will have to set aside more capital for NPLs. How do you think the NPL situation will pan out in the current year and in the next because we are working towards still a very low GDP? Is the government ready to give you capital? Chaudhuri: There are two aspects - firstly, not every expenditure on technology has to be in the capex category. Now there are a lot of models available where the operators come in and set up the equipment and you pay on a pay-and-use basis. Take for example the models used to set up ATMs. Nationalised banks do install their own ATMs, but engage operators to install them and pay around Rs 5 for every time the ATM is used.
Secondly, NPLs take away some amount of the surplus. In our case where we are have a domestic net interest margin of something like 3.9%, we would be left with a safe margin even if we are required to set out 1% for NPL. But that is not to say that we should underplay the NPL scenario that is emerging and as far as the infusion of government capital is concerned, I think for us it is the last choice and resort.
We have enough internal surplus generation. We also have definite programmes to optimise capital usage within the balance-sheet and only if everything falls short is the government capital used.
However, the government is deeply committed and this year’s Budget has set aside Rs 13,000 crore for re-capitalising public sector banks. So I don’t any real constraint regarding capital, but yes, increasing NPLs could possibly be a matter of a concern. Q: Analysts in the market as such are a bit circumspect about SBI managing to hold margins at these decade-high levels. There is an expectation in the market that the government, at some point, will ask you to lower your base rates or at least try and aid the economy and this will mean a reduction in your margins. Do you expect such a directive from the government and will your margins slightly cool off from the current levels? Chaudhuri: Our consolidated or blended margins are 3.6%, but our domestic margins are in fact higher, at 3.9%. The government has never put pressure on us to lower the base rate. In fact even without government or any other kind of pressure, our base rate of 10 is the lowest among public sector banks.
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Our margins are high because our exceptional and demonstrated ability to mobilise savings-bank accounts from every nook and corner of the country. So, as long as savings-bank accounts contribute 40% to our deposits composition, our CASA percentage will remain high. Our cost of funding will be high and we will continue to maintain the lowest base rate. Apart from the base rate, our effective rate regarding home loans or car loans is the lowest not only among nationalised banks, but also among private-sector banks. Q: What you set aside by way of providing for NPLs is going to be an important cost in the current and next year. Do you expect to be called upon to provide more in the second-half? Mishra: Not really, because we have been doing that for the last two-to-two-and-a- half years. So, I do not think the provision will be substantially higher. I don’t think capital will be a constraint and as I said a little earlier, deployment of technology is a must. You have to get the best of technology to manage large volumes of business and to offer the increasing  number of customers a level of service that is more than satisfactory. Q: The UB Group is in talks to sell off its stake in Whyte & Mackay. Have you any news  of the group bringing in more capital to bail out Kingfisher? Chaudhuri: It is not proper for me to discuss the news regarding any individual company. But a meeting with the company has been called by all the consortium members on Wednesday.
It has been emphasised that Kingfisher is well accepted, well positioned and deserves to be lent more capital.
We are slightly encouraged by the progress made by the Cabinet note which has called for infusion of foreign equity into domestic airlines. We are not particularly insistent on foreign equity, but we have been told by the operators that the airline needs capital of a magnitude and price which may not be available domestically.
To that extent, the opening up of foreign direct investment into aviation would be helpful. Whether the sources are foreign or domestic, Kingfisher has to find more equity and that is what we are going to discuss day-after-tomorrow. Q: The managing director of SBI has indicated that there was a slight pick-up in credit growth. Can you apprise us of the current trend? Have you seen any improvement? What are you targeting for the full year? Chaudhuri: Yes, there has been a slight pick-up in credit growth especially on the last day of the month. Secondly, there has been growth in the commercial paper segment. So if you see both of these together- increase on the loan book side and the surge in commercial paper- there has been growth of 5-6% on the base with year-to-date which better than last year.