A week after he took charge of Dhanlaxmi Bank, PG Jayakumar decided to cut costs to strengthen the financial position of the Thrissur-based private lender. The austerity drive would include salary cuts, reduction in travel expenses and decrease in discretionary spends.
"There is an imperative need to exercise extreme restraint on cost. My earnest appeal to all my brethren is to promote austerity in the bank. Wherever possible, avoid spending...In this regard we need to be prepared to make sacrifices for our beloved institution in agreeing to salary cuts, economy class travel, etc." Jayakumar, the newly-appointed managing director and chief executive, said in an email to the employees.
A section of the staff felt the salary-cut brunt would be borne by those who had joined in the last three years and were offered higher compensation than those already with the bank.
The bank had hired 3,300 people and opened 95 branches between March, 2008 and September, 2011, as it expanded business aggressively under its previous chief executive Amitabh Chaturvedi.
During this, its advances grew five-fold to Rs 10,130 crore and deposits quadrupled to Rs 13,815 crore.
Chaturvedi had joined in October, 2008. He brought new management and hired several to drive expansion.
Under him, the bank divided the compensation policy in two parts. The old employees were getting salaries according to the pay structure proposed by the Indian Banks' Association (IBA). They were eligible for pension.
But, to attract talent from other private-sector and foreign lenders, the bank decided to offer higher salaries. It classified this policy as cost-to-company (CTC) structure that did not include post-retirement benefits like pension.
It is learnt that Jayakumar, who has been with the bank for 34 years, draws salary according to the pay structure recommended by the IBA. In 2010-11, Chaturvedi's annual compensation was Rs 53,71,000. In addition, Chaturvedi was also given stock options.
According to sources, the employees' union was not pleased with the two types of remuneration structure and this led to a conflict with the management.
The All India Officers' Confederation (AIOBC) had accused the bank of window-dressing its accounts to show inflated profits. The bank's management had dismissed this and claimed it was a motivated attempt.
Later, the management called for truce and met all the demands made by the union on issues like bonus, increments, pension and trade union rights.
Last week, Chaturvedi resigned due to disagreement with other board members over the functioning and management of the bank's operations.
The bank is expected to report a loss of Rs 30 crore in the third quarter of this financial year, sources said. The lender will detail its October-December earnings on February 14.
Jayakumar, in his letter to the employees, said the bank's fundamentals were still strong but emphasised the lender needs to "strictly adhere to the regulatory guidelines both in business and operations."
Sources said the austerity drive was aimed to improve the deteriorating cost-to-income ratio, which has been rising in the past couple of years, as the bank had recruited more staff and expanded distribution network.
For instance, the cost-to-income ratio increased to 84 per cent at the end of the last financial year from 56 per cent in 2008-09. The staff cost, as a proportion of operating expenses, rose to 58 from 55 per cent during this.
"Keeping in mind the current economic environment, organisations across sectors are looking at ways to cut costs. We, too, are looking at ways to cut costs, but nothing has been finalised. We are in discussion stage. It is premature to comment," the bank's spokesperson said.
