BQ Explains: The Wage Hike For Public Sector Bank Employees

The Indian Banks Association has agreed to a 15% increase in wage bill for public sector banks, a revision that has been pending since 2017.

The 15% hike in the wage bill, applicable from March 31, 2017, is a one-time increase, which will be in place for a period of five years or whenever the next bipartite agreement is under discussion. The increase will push up the wage cost for public sector banks by nearly Rs 7,900 crore because of an increase in the ‘pay slip components’ of salaries paid to employees, according to the memorandum of understanding signed.

As many as 8.5 lakh public sector bank staffers will see some benefit from the hike although the extent of increase in salaries for individual employees remains uncertain.

BloombergQuint explains how this hike will impact employee salaries:

The Hike Is In The Wage Bill

What has been agreed upon so far is the extent of increase in the wage bill of public sector banks.

Bank employee unions have been negotiating the 11th bipartite agreement since March 2017, demanding a 20% hike in the wage bill. They have now agreed on the 15% increase.

This, however, does not automatically mean that employees of public sector banks will see their salaries rise by 15%.

Distribution Of Funds

In fact, what will happen is that the additional Rs 7,900 crore will be split into two categories—for bank officers and workmen.

The split ratio is on the basis of what is agreed between the association and unions. According to the 10th bipartite agreement of 2012, bank officers received 57% of the increase in wage bill, while workmen got around 43%.

Once this split is determined, each employee will receive a portion of the increased wage bill based on their rank and position. Certain bank employees have multiple heads under their annual salary, such as special pay and special allowance, which may not be a part of other employee packages.

So while there is 15% increase in the wage bill for public sector banks, there is no guarantee of the extent of salary increase that employees at different levels will get.

Performance-Linked Incentive

The 11th bipartite agreement also introduced a performance-linked incentive for public sector bank employees. The incentive is linked to year-on-year growth in operating profit of the bank concerned. It’d be paid out in the form of salaried days to the employees at the end of the year.

For instance, if a bank’s operating profit increases by 5-10%, its employees will see incentives worth five salaried days. Similarly, if the operating profit rises by 10-15%, 10 days salary will be paid as incentive. For a more than 15% increase, incentives would be worth 15 salaried days. However, in the last two scenarios, the bank would also need to make a net profit for the incentive to be paid out.

Other Decisions

The banking industry has agreed to increase its share of contribution to the National Pension Scheme to 14% of pay and dearness allowances from 10%. This is still subject to government approval, according to the memorandum of understanding.

Bank employees will be allowed to encash up to five paid leaves every year during a festival of their choice. For employees above 55 years of age, the limit is seven paid leaves. Typically, employees can only encash their leaves during retirement.

Effect On Banks

Every year, banks make additional ad hoc provisions toward wages as part of their accounting policies. The wage bill increase will be paid from such provisions. In case a bank has not made adequate provisions to cover for such changes, it will do so in the year ahead.