Gubbi taluk, in Tumkur district of Karnataka, is barely 100 kilometres from Bangalore, the desi ‘Silicon Valley’ that has given the country’s information technology sector the much-need fillip over the decades. But those 100 kilometres often tell the India tale – not only in Gubbi taluk but across the country.

Take, for instance, financial inclusion – a bureaucratic jargon to indicate people with bank accounts who receive financial services, and one of the Manmohan Singh government’s pet schemes. While Karnataka is ranked ninth among 35 states and union territories in terms of financial inclusion by the Crisil Inclusix Index for the 2011-12 fiscal), and Bangalore (urban) is among the top performing districts, Gubbi taluk is another planet.

“We are still struggling with technology and connectivity issues in such areas,” says Charan Singh, the Reserve Bank of India chair professor at IIM-Bangalore. Business correspondents have to climb a tree to get a mobile signal on their phones, says Singh. He experienced this crude reality during preliminary findings of the survey undertaken to understand the nature of problems different areas face in trying to implement financial inclusion. The results of the report are due to be published in May this year.

In Karnataka, commercial banks have meanwhile claimed to achieve their target of providing banking outlets in villages with population of over 2,000. While commercial banks must be content with this target, a huge question mark dangles so far as implementation of the scheme is concerned. “They (banks) are not aware (of) the right instrument to make the financial inclusion effective. They are just happy to just meet the target,” says Singh about the business correspondents’ scheme launched by the government in 2006.

And that is precisely where the problem begins – not only for financial inclusion but one of similar magnitude with pan-India ramifications.

Singh says the attrition rate among business correspondents is high; public sector banks (PSBs) are facing not only a manpower crisis at the rural level – business correspondents, though, are not recruited directly by banks – but at the upper, decision-making level, too. The PSBs are looking at a remarkable staff crunch. This, bank officers say, would hit not only banking operations but come in the way of fulfilling the need of financial inclusion in a country where more than half the population is still out of the banking fold.

As the current fiscal ends in March, 21 percent of general managers (GMs) and 14 percent deputy general managers (DGMs) will retire from PSBs.

“Decade of retirement”

In most PSBs, general managers are fast vanishing. The top post in banking, it bears deep influence on how decisions are taken at the operational level. GMs are two levels below the level of the managing director, and most public sector banks are working with employees in the ‘gray category’  – those verging on retirement. Several banking insiders, who wished not to be named, say crucial expertise and the deep knowledge of the sector will be lost as these executives leave.

Here is an indication of the gravity of this matter: a McKinsey report on the Indian banking structure says 87 percent of GMs will be superannuated in three years from now (2016-17), leaving a huge gap of those responsible for implementing policy. On top of that, between 60 percent and 90 percent of deputy general managers (DGMs) at PSU banks are set to retire by the end of the same fiscal, says the report published towards the end of 2013.

As if the banks did not have enough to worry about, the number could jump up to 93-100 percent by 2020, the ‘bank benchmarking’ survey says.

With a large number of staff from other categories also due to retire in the next few years, the RBI has already termed 2010-2020 as the ‘decade of retirement’ for public sector banks. An estimated 3.4 lakh employees in all categories will retire in the next 10 years.

In this ‘decade of retirement’, however, RBI wants to achieve its most ambitious target. The Nachiket Mor committee report (published in January 2014) has suggested that every Indian resident above the age of 18 years should have a full-fledged bank account by January 1, 2016. The panel also wants electronic bank account with Internet banking for all individuals so that they can be accessed from anywhere.

With only 36 percent of Indians covered in the banking fold now, two years is too little to meet universal banking coverage, especially with the shrinking staff strength of PSBs, which have a far bigger presence in rural India, where banking coverage is a tardy 32 percent.

“The banking industry is a tool in the hands of the government to promote policies. But can that be done (with short-staffed organisations)?” asks Alok Pandey, professor at the Delhi-based Lal Bahadur Shastri Institute of Management, who has an intimate knowledge of the banking industry.

“The government thinks in terms of the unthinkable. When it cannot decide even on the wage revision of one million bank employees in a year (normally, it drags to nearly three years), how can it provide operating accounts to people who are still out of the banking fold?” asks a senior PSB officer.

Besides electronic bank accounts, the Nachiket Mor panel has also sought the strengthening of every single channel of financial inclusion. And it is here that the all-round experience of the GMS and their familiarity with all aspects of banking is critical, say several banking insiders.

“People experienced in the banking sector will be out of the industry in the next couple of years which will create a huge knowledge gap,” says a general manager of Punjab National Bank (PNB), who is due for retirement in a couple of years. He adds that the GMs and deputy GMs of banks are the backbone of the banking sector, responsible for several crucial tasks like presenting cases in court.

There are field general managers in banks who also become chief executive officers of overseas branches and also the head zonal offices of banks. They have got a wealth of experience working in various capacities at all levels – from rural and semi-urban to urban and metropolis.

“As PSBs are a very important structure of the Indian economy, their general managers provide quality experience in dealing with everyday operations,” says a scale-III officer of Vijaya Bank.

Difficult vacuum to fill

What stops the banks from filling up the vacancies expected? “Promotion is a tedious process in PSBs,” explains Nirupama Soundararajan, additional director at industry chambers Ficci; she looks after financial division. “Normally, it takes 10 years (for an officer) to reach from the post of an assistant general manager to that of a general manager. Officer-level jobs at banks are divided in scales, and you need to work for a certain number of years to qualify and reach the next level.”

Soundararajan says it is relatively easy to appoint EDs and CMDS of banks since only incumbent GMs of public-sector banks qualify for the post. In contrast, she says, finding a GM who comes from the same bank is “not an easy process because the outflow is more than the inflow”.

Besides the large-scale crunch, PSBs are also looking at more exodus of senior staff since the RBI is likely to announce new private sector banks in the next three or four months.

“Public sector banks can’t pay its staff in comparison to the private banks. The 2010 wage settlement brought lesser payment for banks, which is one of the reasons for the exodus,” says Pandey. “The pay package of executive directors at PSBs is less than that of a joint secretary in government of India. While the workload has gone up (at PSBs) in the last few years, in comparison the wage is going down.”

Competition from private banks

While PSBs cannot match the attractive pay and emoluments offered by private banks, says Pandey, they are in a soup because even the current wage settlement, due since November 2012, is yet to be settled. In December 2013, the Indian Banking Association (IBA) first offered just 5 percent of wage revision from the current salary, leading to PSB employees going on a daylong strike on December 18. Later, it offered 10 percent. In any case, the IBA just wants the wage negotiation up to the scale-III level, not beyond it where GMs and DGMs come.

Computers, voluntary retirement

The root of the problem of staff shortage in PSBs can be traced back to the early 1990s, when the government liberalised the economy. With as many as 12 PSBs showing losses in the early 1990s, reforms were initiated in banks after the Narasimham committee-I in 1992 recommended sweeping structural changes in the banking sector. The PSBs, according to one survey at around this time, were deemed overstaffed. The survey found out that of 8.83 lakh employees in 27 public sector banks, 2.5 lakh personnel were surplus.

One reason for this was the introduction of computers. To address this, banks introduced innovative plans such as the voluntary retirement schemes (VRS) to cut staff strength and improve their financial health. An estimated 1.25 lakh bank employees opted for VRS.

Besides, there was a freeze in recruitment in the 1990s.

It was around the same time that new private players – HDFC Bank, ICICI Bank, Axis Bank (then known as UTI Bank), among others – got the licence to operate in the country. Lured by the superior emoluments, many PSB employees went to these private banks. As the private players established themselves, PSBs were afflicted by a higher attrition due to the lack of incentive in the latter. Another round of VRS led to further movement out of PSBs in the early 2000s.

Two decades on, the staff exodus, triggered by a variety of government measures and encouraged by the banks, has boomeranged. So much so that the once overstaffed PSBs are now facing a severe talent crunch, as indicated by the AK Khandelwal committee report submitted to the government in 2012.

This is one reason non-performing assets are increasing in PSBs, says Ashwini Rana, general secretary of a bank employee union. “There just are not the number of employees needed to follow up on bad loans.” Due diligence is a victim.

“If you analyse balance-sheet of private sector banks and the public sector banks, the growth of staff  has more or less matched with the increase of balance-sheet in private sector banks. But in the PSBs, if the balance-sheet has grown up to 20-25 percent, the staff increase is just two percent.  This is already affecting the day to day operations and the position is likely to worsen in days to come when the retirements are going to peak,” says CS Jog, former general manager (credit) of PNB.

Another reason for the crunch, especially at the top, is the fact that lateral entry is restricted in banks. While lateral entry is possible for specialist officers – in economics, agriculture, law, chartered accountancy, information technology, forex, credit and so forth, there is little chance that these officers would go up the ladder. This is because the PSBs have a hierarchical pyramid of promotion – an officer has to spend a considerable amount of time in the job to move up.
Nurturing a fresh pool of talent was never a problem in the early 1980s, when public sector banks were one of the top recruiters. “But the situation is no longer the same,” Pandey points out.

Fast-track promotion

Here’s another sign of a slumbering giant: promotions at PBSs were guided till recently by a circular issued way back in 1986 and 1987. The government woke up and issued fresh guidelines for promotions to fill the ever-increasing talent gap only in February 2011.

The same year, the ministry of finance issued another circular on filling posts senior managers in PSBs. In March 2012, the ministry issued another set of pointers to public sector banks on fast-track promotions, suppressing the earlier guidelines issued before that. Subsequently, many banks started implementing a fast-track channel that can promote a scale-I employee to scale-V in only 11 years.

Besides, in the last couple of years banks started opening new branches in the wake of financial schemes being implemented. They also stepped on the accelerator and began recruiting people and started leadership training in a big way.

According to a top-level officer in Bank of Baroda, the yawning talent gap can only be filled with intelligence, a given time-frame, experience and maturity during an officer’s working life. “But now, in the name of filling vacancies, you (government) are rushing people at the top without the required knowhow and experience,” the officer rues.

As things stand now, there’s still time before Gubbi taluk in Tumkur district of Karnataka metamorphoses into Bangalore Urban – at least so far as banking is concerned.

(This story first appeared in the magazine's February 16-28, 2014 edition)