PSU Bank Mergers: What Consolidation Means For Lakhs Of Employees
The government’s decision to merge 10 public sector banks into four could mean a significant reshuffle within the three lakh strong staff strength across these lenders.
The employees across merged lenders will need to be retrained and redeployed as functions such as treasury, corporate lending and cash management among others are consolidated at the level of the anchor bank.
As announced on Friday, Punjab National Bank will take over United Bank of India and Oriental Bank of Commerce to create the second largest public sector bank. Canara Bank will take over Syndicate Bank to create the fourth largest state-owned lender in south India. Union Bank of India will take over Andhra Bank and Corporation Bank, while Indian Bank is set to be amalgamated with Allahabad Bank.
The government, however, said that there would no retrenchment of employees, leaving top managements with the task of reorganising a large workforce.
Redeployment And Voluntary Retirement
According to a top official at Union Bank of India, one of the first points of reshuffle will be the administrative staff.
Typically, each zone will have a zonal office and branches which report to it. After the merger, the zonal offices in each area would be merged, which means that the excess administrative staff working at these offices will have to be moved to branches or central offices. Administrative staff are about 10 percent of the overall staff strength, the Union Bank official added.
Those in other centralised functions in head offices of these lenders may also see their positions becoming redundant and be moved to other functions.
One way that banks may redeploy staff is within branches since most public sector banks have fewer employees per branch as compared to private sector banks.
According to the Union Bank of India official quoted above, the bank has about eight employees per branch, which is similar for both Andhra Bank and Corporation Bank. As these three banks combine and form a larger entity, there is scope for the bank to add more employees in each branch.
According to Abizer Diwanji, head of the financial sector practice at EY, the mergers provide an opportunity for the government to upskill lower level staff and fill the large number of vacancies in the mid-level staff. Once the lower level staff starts getting better incentives and growth opportunities, these public sector banks will have younger staff in mid-level management, which will help the banks register stronger growth, he said.
Offering a voluntary retirement scheme alongside the reshuffle would also be prudent, said former Bank of Baroda chairman Anil Khandelwal in an interview with BloombergQuint.
“There are many willing people who don't like the idea of continuing for different reasons. In 2001 the government had brought in a voluntary retirement scheme which was quite successful. All this consolidation should lead to a good scheme where people who voluntarily do not want to accept the challenges of the future, can exit, Khandelwal said. He added that a post a VRS, banks may also get the opportunity to hire more appropriately skilled staff from the market, particularly to manage new and emerging areas within banking such as technology-based payment processes.
Lower Fresh Hiring
The experience of State Bank of India’s merger with five associate banks and Bharatiya Mahila Bank in 2017 suggests that fresh hiring by these lenders will be impacted as a consequence of the merger.
Post the merger, SBI did not make any large additions to its employee base in the next two years. In fact, the consolidated lender saw a drop in its employee base as retiring employees were not replaced and those from associate banks were retrained and deployed in vacant posts. According to a former banker who was part of SBI merger, the lender only did some selective hiring to fill key positions in the amalgamated entity, when senior staff retired. The banker spoke on condition of anonymity.
SBI also introduced a voluntary retirement scheme post the merger.
As a result, the staff strength of the consolidated SBI entity has fallen from 2.7 lakh at the time of the merger to 2.57 lakh as on March 31, 2019.
A similar trend is likely to play out for the banks being merged now.
A senior Punjab National Bank official, while speaking on condition of anonymity, said that the increased employees could lead to lower fresh hiring in the near term.
Assessing Productivity Metrics
Banks measure the productivity of operations using the business-per-employee metric. This is essentially advances and deposits of a bank divided by the number of employees it has. A higher business-per-employee number indicates that the bank’s employees are generating more daily business.
SBI, as of March 2019, generated Rs 18.77 crore in business per employee.
Post the mergers, two of the four banks would generate relatively low business-per-employee compared to SBI. For Punjab National Bank, this number will fall to Rs 11.11 crore per employee. For Canara Bank, it will stand at Rs 16.9 crore per employee. The merged Indian Bank will generate Rs 18.86 crore per employee, while Union Bank will generate Rs 19.3 crore per employee.
Beyond just the business-per-employee, these banks will need to ensure that staffing is organised in a manner that more lending business to make the most of the low cost deposit base that these banks have.
According to Diwanji, the business per employee data can be improved by ensuring that the bank staff use data from their current account savings account (CASA) deposit base to extend better quality retail loans. This is something that private banks have been actively doing and public sector banks could learn from, he said.