Tata Steel
was the first company in the Indian steel industry, which
offered ESS or an early separation scheme to its employees
way back in 1996. Over a period of time through successive
VRS, Tata Steel managed to reduce its labour force by
almost one third, in the process managing to improve its
productivity by almost 75 per cent. Its employee cost,
as a percentage of total product cost, has currently fallen
to 10 per cent from 10.7 per cent in the past. The impact
of all this can be seen in its profitability. Since the
reduction in work force, the companys bottom line
has been growing spectacularly to the delight of financial
analysts.
Public
sector banks implementing VRS!
Faced with
cutthroat competition from the new private sector banks,
state-owned banks have taken to the task of cutting costs
very seriously. Despite a clear lead in terms of time,
clients and network, public sector banks have lagged far
behind the new private sector in profitability. Their
flab shows in their bottom lines.
Banks having
implemented, or in the process of implementing, VRS are
State Bank of India, Bank of Maharashtra, Bank of India,
Syndicate Bank, Oriental Bank of Commerce, Punjab National
Bank, Union Bank of India, Indian Overseas Bank, Allahabad
Bank, Andhra Bank, Standard Chartered Bank, Vijaya Bank,
Punjab & Sind Bank, Indian Bank, Bank of Baroda, Canara
Bank, Central Bank of India, Corporation Bank, Dena Bank,
UCO Bank and United Bank.
Speaking to
domain-b
Purushan Vava, chief manager, Punjab National Bank said,
"The whole idea of implementing VRS is to save costs
and improve our productivity." About 7,000 employees
of Punjab National Bank have opted for VRS. In a special
arrangement with their employees, the PNB management has
issued bonds equivalent to 50 per cent of the ex-gratia
payment made to the VRS employees, encashable after 5
years.
NS Nayak, general
manager, Bank of India, agrees with Mr. Vava when he says,
"With computerised systems having been installed,
we realised we were carrying excess flab that was adversely
affecting our bottom line. Therefore we decided to implement
VRS." Mr Nayak disclosed his bank had identified
10,000 excess people out of which 7,766 have availed of
the VRS scheme. While 7,400 had already been relieved,
the case of balance 366 was yet to be decided on disciplinary
grounds.
Indias
largest bank, State Bank of India, has also implemented
VRS and about 21,000 employees out of a total of 233,000
have opted for the scheme in fiscal 2001, according to
SBI sources.
Implementation
of VRS also helps improve efficiency. RM Nayak, general
manager, credit & international banking, Bank of Maharashtra
told domain-b,
"Not only has our bank now become more customer friendly
after implementing VRS, it is also more profit oriented
largely because the average age of our employees has fallen
to 49 from about 55 a few years ago." Similarly for
Bank of India, the average age has come down to 49 from
about 54 a few years ago.
Despite the
fact that banks will incur/are incurring huge capital
costs and cash outflows during the ongoing VRS scheme,
they will simultaneously save a lot of recurring costs
and cash outflows which will positively affect their profits
and improve profitability in the years to come.
In the case
of the State Bank, an analyst with Kotak Mahindra Securities
estimates that the bank could end up posting a net profit
of Rs 24.6 billion in fiscal 2002 as against Rs 16.8 billion
in fiscal 2001! Speaking to domain-b,
Paresh Kothari, an analyst on the banking sector with
Khandwala Securities said, "Impact of VRS has already
been discounted and factored in the current stock prices
by the market but in the long run the overall impact on
the share prices will be very positive." He said
costs will come down and profits will go up, both bullish
factors for stock markets.
Clearly, cost
cutting is set to have its impact on banks profits
as well as profitability and it is only a matter of time
before the frenzy for bank shares returns to the stock
markets.
Social
risk?
While working
women have been the happiest with the sudden rush in VRS
since they can now spend quality time at home, there is
a debate as to whether there arises a social risk of employees
availing of VRS going astray with their money? Employees
are lapping up VRS, seizing a lifetime opportunity of
laying their hands to sizeable amount of cash, which can
be used to fulfil their professional/personal needs/ambitions.
Most managements,
however, do not think so. Said Mr Vava, of Punjab National
Bank, "Bank employees who have availed of VRS are
highly educated and experienced and have taken into account
all consequences of opting for an early retirement."
Agrees NS Nayak of Bank of India, "Bank employees
are aware of the risks of early retirement but they are
sufficiently educated and experienced not to make any
serious mistakes"
However, Shankar
Rele, director, Dash Management Services Pvt. Ltd. thinks
otherwise. Talking to domain-b,
he said, "With a large number of employees expected
to be freed from their regular jobs over a period of time
through VRS, there is bound to be an excess supply side
situation in the job market. These people will have to
find new avenues for themselves and to that extent this
could lead to a social problem."
Mr Rele may
well have a point. There have been many instances in the
past when people, with huge sums of money in hand have
ended up losers because of their inability to manage the
same well. It is a well-known fact that a lot of such
sums have been lost in the stock markets.
Mr Rele has
launched a project whereby he is trying to help those
who have availed VRS to find alternate employment opportunities.
He has used his association with the insurance, bank and
the IT sectors to help such employees alternative employment.
He also provides adequate training to the employees in
new areas where required, with the help of psychologists
who correctly analyse and assess the aptitude of such
persons.
He says that
around 1.25- 1.5 lakh job opportunities will crop up in
areas like insurance, direct marketing and broking through
BOLT terminals and VRS employees could be placed in any
of the above. He says, "I want to exploit the knowledge
capital, which is hidden in all VRS employees. I want
them to work and thus prevent them from remaining idle.
Otherwise, they will be mentally dead."
Unions
and VRS
Various bank
unions have not been in favour of VRS being implemented
but they could do little because the amount of money offered
lured away their colleagues like honey attracts bees.
Said Mr Shanbhag, general secretary of PNB bank
union, "We are not happy. We had all along been opposing
VRS because we feel that our colleagues could face problems
post VRS. However we could do little because the government
enforced the scheme and employees lapped up huge sums
of money they were offered to them by the managements."
Mr Shanbhag said post VRS, replacements have been slow
to come by, which exerts additional pressure on remaining
employees.
This is just
the beginning. PSU banks will have to implement at least
another round of VRS before they reach a respectable level
of employee productivity.
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