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.
More Retail has received an overwhelming response from its two new hypermarkets in Delhi and Hyderabad. Is organised retail finally coming of age?
More Retail, the retail chain of Aditya Birla Retail Ltd, has reported sales of Rs2.5 crore in the first five days since the inauguration of its Saroor Nagar, Hyderabad hypermarket and Rs10 crore worth of sales in the first month since the inauguration (on May 2010) from its Rohini, National Capital Region hypermarket. The company admits that it is surprised to witness such an overwhelming response for its hypermarkets and has decided to open two more hypermarkets in each place (Hyderabad and NCR).
“We have reported mind-boggling sales from our two new hypermarkets in NCR and Hyderabad. After such a great response, we have decided to come up with another two new hypermarkets in Delhi, and two more in Hyderabad, before the end of the current fiscal,” said Thomas Varghese, chief executive officer, More Retail.
The company is looking at opening 10-12 hypermarkets within the current fiscal. Each of these hypermarkets will be between 50,000 sq ft and 70,000 sq ft. More Retail will invest Rs160 crore to Rs192 crore in the current fiscal for expansion of its hypermarket chain and will spend Rs40 crore for expansion of its supermarket chain (each of which will be 2,400 square feet in size) across India.
More Retail will open one hypermarket in Nashik city in Maharashtra and one store in Mumbai within the end of this calendar year. It is also opening one hypermarket in Bengaluru in the current fiscal and two more hypermarkets in the next fiscal in the city. The company has spotted three places in Bengaluru for new hypermarkets. Each hypermarket is expected to contribute Rs5 crore-Rs6 crore worth of sales every month.
“We invest Rs16 crore to set up one hypermarket (including stocks) and Rs40 lakh to set up a supermarket (including stocks). We are funding the expansion through debt and equity. We have enough funds tied up in terms of equity from the promoters and debt from banks. Currently we are not raising funds for expansion. We have 1:1 debt to equity ratio,” Mr Varghese told Moneylife.
The company has completed the consolidation of its supermarket chains. It has closed around 100 stores over the past two years. Currently, it has 530 operational stores across 12 States. The company is planning to add another 100 supermarkets in the current fiscal.
“We have completed the consolidation of supermarkets and we are looking at adding another 100 stores in the current fiscal. We want to add more stores in south India as we have a very strong presence there. We are looking at states like Kerala, Tamil Nadu and Andhra Pradesh. Currently, we have 396 stores across southern India,” explained Mr Varghese.
“By the next fiscal, we should make operating profits in the supermarkets. We target to turn EBITA (earnings before interest, tax and amortisation) positive by 2012 both at the company level (More Retail) and the supermarket level. By 2015, we will start making profit after tax,” claimed Mr Varghese.