State Bank of India - The VRS Story
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BACKGROUND NOTEThe SBI was formed through an
Act of Parliament in 1955 by taking over the Imperial Bank. The SBI group
consisted of seven associate banks:
• State Bank of Hyderabad
• State Bank of Indore
• State Bank of Mysore
• State Bank of Patiala
• State Bank of Saurashtra
• State Bank of Travancore
• State Bank of Bikaner & Jaipur
The SBI was the largest bank in India in terms of network of branches,
revenues and workforce. It offered a wide range of services for both
personal and corporate banking. The personal banking services included
credit cards, housing loans, consumer loans, and insurance. For
corporate banking, SBI offered infrastructure finance, cash management
and loan syndication[4] .
Over the years, the bank became saddled with a large
workforce and huge NPAs. According to reports, staff costs in 1999-2000
amounted to Rs 4.5 billion as against Rs 4.1 billion in 1998-99. Increased
competition from the new private sector banks (NPBs) further added to SBI's
problems. The NPBs had effectively leveraged technology to make up for their
size. |
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Though SBI had 9,000 branches, a mere 22% of those (1935 branches) were
connected through Internet. In contrast all of HDFC[5] Bank's 61 branches were
connected. By 2000, SBI's net profit per employee was Rs 0.43 million while
HDFC's was Rs 0.96 million, and SBI's NPA level was around 7.18% as against
HDFC's 0.73% (Refer Table I).
TABLE I
A COMPARISON BETWEEN SBI & SOME NPBs
BANK
|
NPAs/NET ADVANCES
|
PROFIT PER EMPLOYEE (Rs in Million)
|
SBI
|
7.18%
|
0.43
|
HDFC
|
0.77%
|
0.96
|
UTI BANK
|
4.71%
|
0.69
|
ICICI BANK
|
1.53%
|
0.78
|
GTB
|
0.87%
|
1.2
|
IDBI BANK
|
1.95%
|
1.15
|
Source:
www.bankersindia.com
Analysts remarked that the very factors that were once
hailed as the strengths of SBI - reach, customer base and experience - had
become its problems. Technological tools like ATMs and the Internet had
changed banking dynamics. A large portion of the back-office staff had
become redundant after the computerization of banks. To protect its business
and remain profitable, SBI realized that it would have to reduce its cost of
operations and increase its revenues from fee-based services. The VRS
implementation was a part of an over all cost cutting initiative.
The VRS package offered 60 days'salary for every year of service or the
salary to be drawn by the employee for the remaining period of service,
whichever was less. While 50% of the payment was to be paid immediately, the
rest could be paid in cash or bonds. An employee could avail the pension or
provident fund as per the option exercised by the employee. The package was
offered to the permanent staff who had put in 15 years of service or were 40
years old as of March 31, 2000.
THE PROTESTS
THE POST VRS DAYS
QUESTIONS FOR DISCCUSION
[4] The
process of involving numerous different lenders for providing various
portions of a loan.
[5]
Housing Development Finance Corporation
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