“HR issues have become the new risk factor in the banking industry”  

July 9, 2010

Dr Anil K Khandelwal, ex-chairman of Bank of Baroda and current chairman of the committee to look into human resources (HR) issues of public sector banks (PSBs), speaks with Moneylife’s Sanket Dhanorkar about the issues affecting performance and productivity in PSBs and the committee’s proposals in this regard

Sanket Dhanorkar (ML): What were the considerations while working on the proposals for the Committee on HR issues in PSBs?

Anil Khandelwal (AK): The process of reforms in the Indian banking industry was set in motion with the Narasimham Committee Report, which heralded reforms in accounting and other areas. Subsequently, the banking industry has admirably adapted technology and also ventured into retail. But HR issues have remained unaddressed in the system. For some strange reason, these have not been addressed by the industry. This is probably because banks are obsessed with industrial relations. If you let accumulate a problem, it shows up in a variety of ways. Now that a lot of people are suddenly retiring and attrition is high, it has created a vacuum at the top and a skill-gap in the system in key areas like risk-management, treasury and international banking. Therefore, HR issues have suddenly come to the centre-stage.

I do believe that HR issues have become the new risk factor in the banking industry. I must say, with some regret, that these issues have always been on the backburner. Long-term initiatives are largely not taken, with the result that we are today facing this problem. Today you need a banker who is very articulate, willing to take risk and bold enough to push for change and of course, well-versed with modern practices. Leadership development is a huge challenge for the industry.

ML: What are the key recommendations the committee has made?

AK: The major focus of the committee is to create performance orientation and productivity enhancement. We should not shy away from talking about issues of performance and productivity, which are fundamental to the long-term sustenance of the industry. Today, as much as 65% of the staff (workmen) is not covered by a performance-management system. The PMS for officers and executives is also quite nebulous. Therefore, the committee has proposed that all staff should be covered by PMS and there should be accountability for effective management of PMS.

The next issue is about staffing levels. There is a huge variation in staffing ratio from bank to bank. The staff costs also vary substantially. There is no system of scientific manpower planning. The entry qualifications and deployment strategies need drastic review as these issues directly affect productivity.

ML: What are the efforts towards strengthening rural staffing of banks?

AK: We have seen that there is a severe shortage in rural areas. This is one area which is grossly neglected. We have proposed three years compulsory rural service for new recruits in the clerical cadre. Already, there is a compulsory rural posting for officers for the same period. We have actually said that clerks should be recruited specifically for semi-urban and rural areas. To encourage existing clerks to go to rural areas, we have proposed providing incentives to them by way of fast-track promotion and liberal house rent.

ML: It is often said that there is no reward for good performers and no punishment for bad performers in the present system.

AK: Yes, in a way you are right. No organisation can prosper if performers are not rewarded and non-performers get away unnoticed in the system. Our committee has deliberated on this issue and has proposed 2% of net profit to be given as an incentive to 25% of performers. We have also proposed a scheme of ESOPs (employee stock options) to the top 15% performers. Similarly, there should be two reviews for officers — one at the age of 50 and another at 55. I hope that these measures should bring in a culture of performance in PSBs.

ML: Bankers have often voiced their concern on inadequate allocation towards welfare. Has the committee looked into this matter?

AK: Yes, of course. Welfare is a very important aspect of HR management. We have proposed substantial increase in allocation for welfare. We have also proposed 25% of total allocation to welfare be directed towards retired employees.

ML: Can you elaborate on the actual gaps in top management that we keep hearing about?

AK: The leadership gaps in PSBs are quite alarming. For example, in the next five years, 80% of general managers, 65% of deputy general managers, 58% of assistant general managers and 44% of chief managers will be retiring. The pool of these experienced executives cannot be replaced only through promotion. Developing leaders is a long drawn out process and requires considerable effort in indentifying and nurturing talent over a long period. Currently, there is an absence of a well-knit and comprehensive strategy to develop people to take up higher level positions in management.

ML: So what are the committee’s proposals in this regard?

AK: The committee has proposed a comprehensive strategy for succession planning and leadership development. We have proposed that a bank’s board should do succession planning for each key leadership position by identifying three potential successors. Besides, the committee has proposed that potential identification should be done through modern HRD tools like 360-degree appraisal and Assessment Centre approach. We have also provided for the setting up of a national level Banker’s Leadership Development Institute, a green-field project, which will be a national academy for developing leaders for the banking industry.

ML: Has the committee suggested any changes to the recruitment criteria?

AK: For the past several decades, the recruitment criteria have remained the same. For example, for recruitment of clerical staff, SSC is the minimum qualification. Considering the changes in banking over the years, we have recommended that the minimum qualification should be graduation. Also, for the officer cadre, we have proposed that, apart from graduation, they should also hold a banking diploma. There are two reasons for this — people today just enter banks and then leave. If you are interested in banking, be serious, acquire a diploma and then come to this field. A doctor acquires an MBBS and then starts his practice or a lawyer does law studies and then offers his services.
We have also suggested new methodologies of recruitment — currently there exists a 30-40 year old testing system. We have proposed that banks test candidates based on today’s requirements — computer skills, social and marketing skills etc.

ML: What about the demands to have a central recruitment system as managed by the erstwhile BSRB (Banking Services Recruitment Board)?

AK: We are only for having quality staff in banks. You cannot standardise if you want quality staff. One bank would like to test candidates on ten things; others may not want to do that. We have specified that the tendency to outsource should be avoided.

ML: Have any changes been proposed from the corporate governance point of view?

AK: We have said that the entire scheme of appointment of board of directors should be revisited. It was formed at the time of nationalisation. Much water has flown under the bridge since then. Banking has changed. You require domain specialists on the board. We have also suggested separation of the post of chairman from managing director, in keeping with the best international practices.

ML: It is often said that employees’ wages have no relation to capacity to pay or actual performance. Has the committee looked into this issue?

AK: Today, the entire industry is governed by industry-wide wage settlements. There is no linkage with capacity to pay. An employee in a top-performing bank earns the same amount as that of one in a low performing bank. So there is no motivation. It has perpetuated rigidity in job roles, restrictive practices, restrictive mobility, and culture of entitlement, placing performers and non-performers on an equal footing.
Since the settlement is done at the industry level, there are lack of initiatives and innovations at the bank level. Our committee has proposed that wage settlement should be at the bank level. Each bank should decide its wage structure depending on its profitability and capacity to pay. It will help in retention of good people and also usher in a variable pay system in banks; there are unique bank-specific problems that cannot be addressed with an
industry-wide settlement. The time has come to look into these issues in more detail.

ML: Over the last decade, PSBs have performed quite well on many parameters. But what is the motivation for a top-performing bank if all banks are grouped into the PSB category?

AK: You are right. All banks are bundled into one category. We have therefore proposed that within the family of PSBs, banks should be recognised as per their performance, productivity and efficiency. We have proposed the ‘Maharatna’ status to SBI and bring in a scheme to create categories of ‘Navratna’ and ‘Mini-Navratna’ amongst PSBs based on efficiency ratios. We have suggested a committee to identify the criteria for this purpose.

ML: How do you plan to initiate HRD interventions on a sustained basis?

AK: Well, it is extremely important to take a break from the past and introduce HRD work on a sustained basis. This will require board-level attention and continuous emphasis from the government. Like any other business function, there will have to be deliverables for HR also. We have proposed several steps that include a board-level position in HR in large banks, a steering committee of the board on HR and a standing monitoring group in the ministry of finance. Besides, all banks should recruit professionally-qualified HR staff both at senior and other levels to take initiatives in building talent and (develop a) leadership pipeline in PSBs.

ML: What has been your overall experience working on this committee and do you think that these recommendations will be implemented by the government?

AK: In my entire career, I have used HRD as a powerful instrument of change and transformation. I have also done strong advocacy for using modern HR systems. HR today is more talked (about) and less implemented. I hope our recommendations will be examined seriously by the government and, as practitioners, we believe that each of the proposed recommendations is doable. — Sanket Dhanorkar