Faced with a manpower crisis due to neglect of human resource issues, the committee led by Dr AK Khandelwal has called for an urgent realignment of HR practices in public sector banks

The committee tasked with looking into the human resource (HR) issues of public sector banks (PSBs), led by the ex-chairman of Bank of Baroda, Dr AK Khandelwal, has proposed some sweeping changes in the way PSBs recruit, compensate, incentivise and plan for succession of employees under their fold.

Identifying certain gaping holes in the way HR issues are administered by PSBs, the Committee has made several recommendations to bring the banking system back on track in terms of manpower. PSBs seem to be facing a crisis of sorts, with almost half the top management cadre retiring in the next couple of years, with no identifiable talent to replace them. The system faces a high degree of attrition, with new recruits jumping on to better opportunities elsewhere for want of adequate compensation. On the whole, this situation has arisen out of the years of neglect in strengthening HR policies and practices. 

Taking this into account, the Committee has sought to create a robust HR framework within PSBs. Informed sources told Moneylife, "If you allow a problem to accumulate, it shows up in a variety of ways. Since a lot of people are retiring at the same time and attrition is high, it has created a vacuum 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."

As the first step, the Committee is understood to have proposed that a board committee on HR should be formed in each bank. Banks having business worth Rs3 lakh crore and a staff of 30,000 will be required to appoint an executive director-HR on their board. The Committee has also recommended a monitoring committee in the ministry of finance, headed by the secretary, joint secretary and two HR experts to draw up the HR record of each bank and initiate a bank-wise reform process.

Among other things, the Committee wants banks to do away with the present practice of an industry-wide wage settlement. Instead, it has called for having wage settlement at the individual bank level, with each bank deciding its own wage structure depending on its profitability and capacity to pay. Our source says, "There are unique bank-specific problems that cannot be addressed with an industry-wide settlement. There is no linkage with capacity to pay. Since the settlement is done at the industry level, most of the initiative at the bank level gets lost."

The Committee has also suggested changes to the archaic recruitment criteria of PSBs. For clerical staff, the Committee has proposed that the minimum qualification should be graduation, instead of the current SSC requirement. Also, for the officer cadre, it has suggested that they should hold a banking diploma, apart from graduation. It has also recommended some changes to the test structure of PSBs, taking into account modern skills sets required for the banking function.

To ensure that banks have a proper succession framework in place, the Committee has proposed that a bank's board should do succession planning for each key leadership position by identifying three potential successors. The Committee has also provided for the setting up of a national level Banker's Leadership Development Institute, a greenfield project, which will be a big academy for developing leaders for the banking industry.

Apart from this, the Committee has sought changes in the welfare and reward provisions of PSBs. The Committee has asked that the ceiling for welfare contribution be raised to Rs40 crore from the present Rs15 crore and that 25% of the welfare contribution be directed towards retired staff.

To strengthen the presence of banks in rural and semi-urban areas, the Committee has provided that new recruits, especially clerks, be posted in rural areas for three years and in order to encourage them to move to rural areas, banks should provide them incentives in the form of faster promotion.