Conclusion

VRS was implemented in order to reduce the excess staff that dealt mostly with the
routine work. Technological up gradation has enabled it so that the work can be
done with less manpower. The advent of ATM's has rendered even many of branch
offices redundant. Manystudies have indicated that a large number of those who
opted for VRS were in the officer cadre. VRS was also intended to improve the
performance of the 'weaker banks' (banks whose efficiency was low). It was
however found that the numbers of personnel opting for VRS from low performing
banks were less. It is always desirable to carry out the Human Resource Planning
before implementing the VRscheme. Studies have indicated that especially in banks
where VRS was first introduced, littleor no manpower planning seems to have been
done. This has resulted in a massive exodus from certain branches of PSB's. There
existed a situation where the entire staff of a branch has left through VRS. This
meant new staff having to be deployed into a branch where no onewould know how
the business was carried out previously. The guidelines issued by the Government of
India stipulated that it was the banks management's prerogative to accept or reject
a request for VRS. In reality this was not done in many banks. One of the ways the
scheme could have been implemented would have been by exempting certain
categories from VRS. Punjab National Bank exempted the IT professionals, forex
dealers and other experts from VRS. The problem of specialists leaving the bank in
large numbers was further compounded by the fact that others also opted out
because of the fear of increased workload after VRS.

Case study discussions

There are some factual inaccuracies in the case. FICCI had nothing to do with VRS in
SBI. All companies opting for VRS normally have option to amortize the cost of VRS
over five years. SBI also had this option. However, being a profit making bank, the
board decided to write off entire cost in one go rather than carry it in the balance
sheet. Had the cost been amortized, profit would have been seen to be falling to Rs
23.2 billion from Rs 25 billion, which would not have looked so alarming. The last
paragraph of the case study talks about the reasons for the SUCCESS of the VRS
story in SBI. But was VRS a success in the SBI in the first place?Success of any
scheme can not be measured by absolute numbers who opted for the scheme but
by fulfilment of the objective of the scheme.

VRS is not a cheap proposition. It costs any company a fortune. In the present case
itself, in the very first year in partial fulfilment of VRS scheme, the compensation
package cost SBI Rs 9 billion (Decrease in profits compared to previous year,

assuming that there was no growth in profits in that year). Another few billions were
spent in subsequent years. Such huge sums of money are spent by the companies
with two primary objectives: - (a) Get rid of the dead wood of the organisation
without any labour trouble, and(b) Improve the functioning of the organisation.In
case of SBI, both the objectives were squarely defeated. (Second aim has been
more often defeated than met in all cases of VRS). To begin with, VRS scheme set
the unions and the officers on the war path with the management and there was
mayhem with court case and work to rule, etc. Trade unions response can be
excused considering their vested interest against VRS (Lesser the strength of
employees, lesser the members and therefore lesser the unions strength and lesser
the contributions) and that it presented an opportunity to them to press for better
compensations. Moreover, their contention that employees were being forced to opt
for VRS was proven wrong when there was more than desired, rather intimidating,
response for VRS. However, officers protest was completely of managements own
making. After making the offer and employees exercising the option, it was
manifestly wrong to change the conditions of VRS. Itis like offering a quietly
standing elephant a sugarcane and then trying to snatch it back. You are risking
your life.

Secondly, rather than targeted clerical staff, it was majorly opted by the officer
cadre and even among them, the specialists like forex dealers, treasury managers,
etc. The purpose of removing the deadwood was defeated and company ended up
paying the billions to lose their key personnel.Another misleading issue is about the
NPA figures. SBIs 7.18% NPA look disconcerting against 0.77% NPAs of HDFC Bank.
However, figures dont tell the whole story. The comparison itself is wrong. You dont
ever compare an elephant with mouse. SBI was operating in a different paradigm
compared to private banks. Private banks had freedom to choose their debtors.
They were operating with a small base and niche customer segment in big cities.
SBI had 9000 branches with the responsibility of social banking. Company had to
follow the political dictates of directed lending to marginalised sections of the
society and political class with nil or inadequate securities. Another issue was that
SBI was the oldest bank. Incorporated originally as Imperial Bank of India in preindependence era and later in 1955 converted to SBI, its NPAs were accumulated
over decades. As per prevailing accounting practices, NPAs were not written off or
provided for for decades. Also,interest on NPAs were regularly calculated and
booked as asset in the balance sheet. Thus, NPAs kept swelling. Basel committee
recommendations and Narsimhan committee report were out before Private banks
set their foot and could start on a clean slate. It is quite possiblethat HDFC was
following different accounting practices compared to SBI. Thus, this NPA monster
was probably to a large extent created by the accounting policies besides the
directedlending that was so rampant in pre 1990 era. And finally comes the issue of
mindset and

prevailing norms. Each era has its own customs and taboos. It is grossly
inappropriate to judge an event or person in the past against standards followed in
todays society. The so coooool dresses of today would have been scandalous a few
decades back. Simalrly, in the days when SBI accumulated all those NPAs, social
banking was the norm and no one batted an eye lid against NPAs. Even after it
became the dirtiest profanity in banking dictionary in the liberalisation years, the
old timers could not change their mind set overnight. Preparation and application of
prudential credit worthiness norms and changing of employees mindset took some
time. Today, SBIs NPAs have fallen to just 1.7% of the deposit. (However, this
statement conveniently hides the fact that lot of NPAs have been securitied to a
corporation created for the purpose).Comparison of internet connectivity of SBI
branches commented upon in the case was also discussed. It was another case of
wrong comparison. HDFC with barely 61 branches in large cities was being
compared with SBI which had 9000 branches spread across length and breadth of
the country and penetrating even the remotest locations in the country where
people had not even heard of telephone leave alone internet. New private banks
started their operations in fully computerised era and their branches, employees,
procedures were all fully IT friendly from day one. In case of SBI, every thing, right
from procedures to employees, had to be converted into IT compliant. And
conversion is many fold tougher job than new creation.One of the logics given for
VRS was high average of SBI at 45 years (approx). It needs to be appreciated that
public sector banks had almost 800% growth between 1969 and 1990 when RRBs
were started and given a boost by public sector banks as sponsoring banks. Large
part of this growth had taken place in few years after 1969 (nationalisation of banks
by Mrs Gandhi). Those people had led to this increase in average age of employees.
Given everything stated above, was the average age really too high? Assume that
average age of an employee was 25 years when he was inducted in to service and
retired at the ripe old age of 60 years. Even if recruitment process was absolutely
regular and gradual, average age would have been (25+60)/2 = 42.5 year which
is the lowest possible age for an old bank