Reward for change

The wage settlement between bank employees and the Indian Banks' Association will be a relief for both parties, as negotiations had dragged on for two years. The 13.25 per cent wage hike is more generous to bank employees than previous wage agreements. Bank managements too have something to take home, in the form of concessions made by the unions.

These include limited transfers for clerical staff (with riders attached). Restrictions on full computerisation, on the use of ATMs, and on the upgrade of technology have been lifted. The unions have also agreed on outsourcing, provided in-house capability for the work does not exist.

As can be seen from the nature of the concessions, bank unions still command clout. The payout of Rs 2,200 crore also comes at a time when bank profitability has suffered because of rising interest rates and the resulting depreciation in their investment portfolios.

Nevertheless, many banks had already provided for the rise in wages; although the expected hike was lower than the figure finally settled on, the final hit on the bottom line will be limited. But banks will have to take into account the rise in their pension liabilities as a result of the wage hike.

This said, such an industry-wide settlement is an anachronism, out of place in today's competitive milieu. There is no particular reason why a public sector bank that is doing well should pay the same wages as another that is limping along.

The culture of uniformity in salaries and seniority-based promotions has led to the fostering of mediocrity. If pockets of excellence persist in public sector banks, they do so in spite of this environment.

The best and brightest of the industry routinely migrate to more lucrative pastures in the private sector or in foreign banks. Public sector bank managements are aware of this and would be only too glad to be able to negotiate salaries separately with their workmen.

The point is that such agreements will be beneficial even to the employees of the better-run banks, as they will be able to negotiate a bigger pay hike. Under the current system, it is often the ability of the weakest bank to pay that determines the size of the hike.

Public sector banks have changed dramatically in the last few years. They have cleaned up their balance sheets, adopted computerisation and branch connectivity, and gone in for large voluntary retirement programmes.

They have overhauled their systems to try and become competitive, and have become more business-like. Some of them have even tried to convert their clerks, freed by computerisation from the drudgery of back-office tasks, into salesmen.

In short, public sector banks have been moving with the times and they are unnecessarily hobbled by an industry-wide wage settlement. What is needed is an incentive-based compensation structure, as exists in private sector banks. It must be hoped that this will be the last wage settlement that the Indian Banks' Association will be called upon to negotiate.