The Hindu Business Line : Banking on performance

When the Finance Minister told his audience at the India Economic Summit that his government would push for financial sector reforms before it bowed out of office, he may not have had organisational changes within the public sector banks (PSBs) in mind. But if there is one issue that cries out for change it is the rigidity of the human resource policy that is sapping the competitive vigour of the institutions. From recruitment methods to wage settlements and the appointmen t of bank chiefs and senior executives, the entire edifice built after 1969 has become not simply outdated but also a cause for morale-crushing income inequalities. Government inaction on this count is matched by bank employees unions’ obstinate refusal to allow any winds of change to blow in.

At the recent Bancon conference in Mumbai, chiefs of PSBs discussed ways to increase productivity, introduce high-tech measures to increase efficiency and a bank-based wage system that would permit individual entities to fix wages to replace the existing industry-based settlement for every grade across banks. Predictably, the idea has spooked the unions which were quick to shoot down the idea of wage fixation by individual banks. With each passing year, however, the rationale gets less persuasive: according to one spokesperson, the proposal would “demotivate and de-incentivise “ bank employees, an argument that stands the proposal’s rationale on its head. Surely, a performance-based, bank-based wage fixation process would do just the opposite, for it would grade performance, rewarding employees on merit. Partly responsible for the sluggish services and inability of PSBS to attract talent at various levels has been the recruitment and compensation process cast in stone over the last four decades. Yet the All-India Bank Employees’ Association is not averse to performance-based pay beyond a certain grade, a qualification that appears to shield lower-grade employees from the competition but, in effect, leaves them out of the incentive-based wage system.

Unions must realise that their present power to collectively bargain for the status quo flows from the lack of competition among PSBs. But core banking and Basel II norms that are infusing technology will increasingly make their position untenable; banks will simply not recruit certain categories of labour. Before that happens, the unions must leverage their present clout to introduce skill upgrades for appropriate employees and VRS for the rest. Resistance to technology is no longer possible; defending the wage settlement as it exists through national federations still is — but only for the time being. For their part, employees would be better off joining hands with banks for a merit-based recruitment and wage policy. They would have a lot to gain and a lot more to defend.

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