Friday, June 4, 2010

Govt. committee recommends measures to bring professionalism in India’s banking industry

The employees of public sector banks (PSBs) are earning good salary in comparison to their private sector counterparts but there is lack of professionalism in India’s banking industry.

After the Sixth Pay Commission award for central government employees, as per a deal settled between IBA and employees’ unions, bank employees were given a 17.5% salary hike last year. But the service range of PSBs is becoming bigger and more complex, thus, there is a need for employees with specific skills as over 58% of middle-level managers in PSBs will be retiring in a couple of years.

Although, India’s 27 PSBs combined manpower strength is around 7 lakh. But the industry — which accounts for 70% of the banking business in the country — is experiencing a shortage of talent in high-end areas like risk management and treasury operations. To make the PSBs more competitive and infuse a greater degree of professionalism, a government committee has recommended 15-20% variable component in the salaries of PSBs employees, also has recommended the removal of the existing upper limit for their remuneration. It has also proposed for a hike in the retirement age to 62 years from the current 60, as told by sources in the committee. The committee has been set up by the finance ministry, is likely to submit its report next week.

If committee’s recommendations are accepted then each bank will get free hand to fix its salary structure based on its financial strength and also can reward the highly-skilled with out-of-turn promotions which will help in creating competitiveness amongst the employees resulting into constant up gradation of knowledge and skills.

The panel, headed by Bank of Baroda’s former chairman AK Khandelwal, has also recommended that each public sector banks should be allowed to settle salaries for its employees in line with their specific skill sets and the bank’s overall performance.

The panel of members of committee set up last year include MV Nair, CMD of Union Bank of India, Deepak B Phatak of IIT-Mumbai and TV Rao of IIM-Ahmedabad . Nair, who is also chairman of Indian Banks’ Association (IBA), told FE that “the report to be presented next week would have measures needed to revamp recruitment processes, career and succession planning and training.”

Currently PSBs follow an industry-wide wage settlement brokered by IBA once in five years, if the recommendations of the committee are accepted then this old system will be scrapped. However IDBI Bank tried to fix the wage structure of its own employees had to withdraw the policy due to opposition from employee unions.

An anonymous member of the panel said, “Many PSBs are not able to recruit and retain skilled people in key functional areas like risk management and treasury operations.” According to committee the promotions in highly specialized areas should be done on the basis of expertise and not on seniority basis.

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