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. 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 further added to SBI’s problems. The new private sectors banks had effectively leveraged technology to make up for their size. Though SBI had 9,000 branches, a mere 22% of those (1935 branches) were connected through Internet. In contrast all of HDFC Bank’s 61 branches were connected through internet. 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%. 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 response was the lowest amongst the lower cadres with only 3,137 (5.23%) applying for the VRS. The bank received a total of 35,380 applications (15.19% of total staff strength) by the time the scheme ended. Of this, the number of applications from officers stood at 19,295 - over 33% of the total officers in the bank. The response of VRS seekers was slightly lower among clerks as only 12,948 applications were received - 11.46% of the total number of clerks in the bank. According to reports, SBI’s total staff strength was expected to come down to around 2,00,000 by March 2001 from the pre-VRS level of 2,33,000. With an average of 5000 employees retiring each year, analysts regarded VRS as an unwise move. By June 2001, SBI had relieved over 21,000 employees through the VRS. It was reported that another 8,000 employees were to be relieved after they attained the retirement age by the end of 2001. Analysts felt that this would lead to a tremendous increase in the workload on the existing workforce. According to industry watchers, by 2010, the entire SBI staff recruited between mid 1960 and 1980 would retire. As a result, SBI would not have sufficient manpower to manage over 9000 of its branches. Another major hurdle was the Government’s proposal to scrap the Banking Service Recruitment Board (BSRB) as the bank lacked expertise in recruitment procedures. In the post-VRS scenario, SBI planned to merge 440 loss-making branches and announced to redeploy additional administrative manpower (resulting from the merger of loss-making branches) to frontline banking jobs. SBI also planned to reduce its regional offices from 10 to 1 or 2 in each circle. In August 2001, it was reported that a single officer had to take charge of 3 or 4 branches as the daily concurrent audit2 got affected. Departments like internal audit, concurrent audit, monitoring, inspection of borrowals had hardly any staff, according to reports. It was reported that employees working in branches that had a high workload went on work- to-rule agitation, blaming the VRS for their problems. Analysts felt that SBI would have to take serious steps to reorient its HRD policy to restore employee confidence and retain its talented personnel. SBI had many organizational strengths and an excellent training system, but due to weak HR policies, it had lost its experts to its competitors. The employees of almost all the new generation private sector banks were former employees of SBI. The bank’s well- defined promotion policy was systematically flouted by the framers themselves and, as a result, employees with good track records were frequently sidelined. Many analysts felt that SBI was not able to realize the critical importance of recognizing inherent merit and rewarding the performers. The above factors were cited as the major reasons for the success of VRS in the officer cadres, who were reported to be demoralized and de-motivated. The arbitrariness and insensitivity at the corporate level had dealt a severe blow to the employees of the organization. What remained to be seen was whether SBI would be able to reorganize its HRD policy and retain its talented personnel.

1. The outcome of the SBI VRS has highlighted the need for proper manpower planning and HRD policies in Indian public sector banks. Discuss the various steps to be taken by the SBI in the post VRS scenario? 2. The results of the SBI VRS were not in line with the management’s expectations. Comment on the above statement and discuss the effects of the VRS on SBI.