Wage Settlement Saga in Public Sector Banks: Issues and Challenges Ahead

Posted in Finance Articles, Total Reads: 2313 , Published on 15 January 2015
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Every business sector in the economy is bound by certain obstacles; be it Information Technology (IT) Sector, FMCG, Manufacturing or any other and banking industry is not an exception to it. Banking sector comprises of public sector banks, private banks, foreign banks, regional rural banks etc. Amongst all of them, the most hyped are public sector banks (PSBs) recently because of plethora of reasons; the most important being Wage Revision and Strike. PSBs are mounted by hefty challenges and issues; from high NPAs, shrinking capital base and profitability to the newest buzz word: ‘Strike’. In legal terms, strike is defined as ‘A collective cessation of work by a body of persons employed in any industry acting in combination, or a concerted refusal, or a refusal under a common understanding, of any number of persons who are or have been so employed to continue to work or to accept employment’.


The current reason of the turmoil in PSBs is wage revision or implementation of X Bipartite settlement. Employees are agitating because the wage revision is due since November 2012 and United Forum of Bank Unions (UFBU), which is an umbrella organization representing nine bank employees and officers are demanding at least 25% hike (which has been scaled down to 23%) but the Indian Banks’ Association (IBA) is adamant to give its nod to the usual 11% figure. Wages represent an important extrinsic motivator and is defined as ‘All remuneration capable of being expressed in terms of money which would if the terms of the contract of employment express or implied were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment’.

Image Courtesy: freedigitalphotos.net


The year 2014 had seen many strikes in PSU banks; starting from the two day strike in February (February 10th and 11th ) followed by one day strike on November 12th and zone-wise relay strike from December 2nd to 5th. Many more strikes are likely to happen in coming months; strike on January 7th followed by continuous work stoppage from January 21 to 24 and an indefinite stir from March 16th.


Whatever may be the issue, to every action, there is an equal and opposite reaction. Employees may go on strike and not get paid for that day, but considering the overall banking scenario, it disrupts banking operations which in turn has an impact financially, economically and since banks deal in foreign exchange operations also, the impact can be felt at the global level as well.


Operational hitches faced by banks during strike are:

1. Delayed Cheque Clearance and Deposits: Cheque clearances, cash withdrawals and deposits in public sector bank branches across the country are hit as the branches remain non-operational and cannot provide services to the customers, irrespective of the importance attached with the work. Cheques remain uncleared and fresh deposits unaccepted which affects business transactions drastically. An example of such a situation is given by the city Ludhiana which has around 580 branches of nationalized banks and banking operations took a stall on 3rd December due to relay zonal strike in the Northern region. It is reported that over 60,000 cheques remain uncleared that day which were worth Rs. 800 Crore. Such is the magnitude of loss caused to banking industry due to branches being shut-down completely.


2. Disruption in Transactions of Stock Brokers: Like customers, stock brokers too face difficulty due to banks being non-operational. Since banks remain closed, the client’s money cannot be credited in the broker’s account due to which many brokers have to provide the required capital from their own pockets to meet settlement obligations. This problem becomes more severe if the strike is carried on beyond two days or more. According to market reports, the two-day bank strike in February (February 10th and 11th) in 2014 had resulted in a 50 per cent decline in the stock market volumes. Consequences are unimaginable if employees participate in the four-day strike proposed from 21st January to 24th January followed by an indefinite strike from March 16th.


3. Inability to Withdraw Cash from Banks: Due to banks remaining non-functional, customers are unable to withdraw cash from their accounts. This problem becomes acute for those who do not hold a debit card or where ATM presence is NIL, especially remote areas. In other cities where ATM facility is in abundance, this problem can be taken care of by replenishing ATMs. Despite such measures, there have been reports of many ATMs running out of cash causing a total disruption in services provided by banks to their customers.


4. Disrupted Forex Transactions: Forex transactions also take a hit as branches dealing in forex trading bear a deserted look on the day of strike, hence such transactions are not carried out for that day.

 

An important question that arises after taking a look at the operational challenges faced by banks is that why such actions are taken by the employees or what is the motive behind strike? The answer to this is the wage settlement or increment in wages by IBA as per the demand of the unions. But IBA has already given the statement that 23% wage hike is irrational, illogical and exorbitant. So will the two parties (IBA and UFBU) ever reach a stage of equilibrium on this issue? The matter would be unfolded in the days to come as both IBA and Unions want early settlement of the issue, keeping in mind the interest of all the stakeholders. Banking industry forms the heart of the economy and for the economy to flourish, the banking sector must grow by leaps and bounds.

 

Analyzing the case from IBA’s perspective, following challenges need to be addressed:

1. There are currently 27 public sector banks, including state bank of india and its associates. Amongst them, State bank of india is the largest lender followed by Punjab National Bank, Bank of Baroda and others. These banks are further classified as Very large banks, mid-sized banks and small banks depending upon their business portfolio. Hence every bank has different employee strength, different balance sheet figures which means their paying capacity would also differ. The bank managements of most of the banks have been arguing that the amount of wage revision demanded by the unions is unaffordable to them and even IBA has also asked member banks to assess their paying capacities and act accordingly. So will every bank give the ‘Green Signal’ to 23% wage hike?


2. Basel III norms are due to be implemented by March 2019 and it is projected that Indian banks would need $200 Billion of capital to implement them. The core capital position of Indian banks is already weak compared to banks in other countries that are migrating towards Basel III and it is reported that private banks are much better positioned in terms of their capital than public sector banks. Keeping in view such huge capital requirement for Basel III implementation, will such high wage revision be feasible for every member bank?


3. A buzz word in banking industry is ‘NPA i.e. Non-Performing Assets’. Reportedly, gross NPAs of public sector banks have crossed 5% of the total advances by the end of the quarter ending September 2014. Bad loans rose sharply due to heavy exposure of banks to industries like gems and jewellery, coal and cement, infrastructure etc. It is believed that the amount of exposure to the beleaguered Kingfisher airlines was so huge that it could finance the wage hike of the entire banking industry. A large portion of the profit earned for the year is siphoned-off by provisions and write-offs of bad loans.


Hence an important question that arises in this regard is that since profitability of most banks has degraded due to high NPAs, will all banks be financially sound to bear the load of increment in pay-slip component by 23%?


Bank credit is considered as a catalyst to the Indian economy and NPA creates bottlenecks which creates adverse impact on the economy. Taking a look at the Gross NPAs of public sector banks, an estimate can be made regarding pile-up of bad loans. During post-reform period, banks have grown in size and boundary but reckless lending and advances have also caused increase in default rate and hence NPAs.

 


Source: RBI. Handbook of Statistics on the Indian Economy, 2005-06, 2013-14

 

It is evident from the above figure that NPAs of public sector banks have piled up enormously for the year 2013-14 and as per the finance ministry’s estimates, these figures are likely to see an upward trend for the financial year 2014, with NPAs crossing 5% and above of the total advances.


Therefore looking at all the above mentioned hurdles abounding IBA and the Public Sector Banks, the path to an amicable wage settlement would not be easy. It would be incorrect to opine that wage revision demanded by the unions is baseless and irrational because employees should be compensated fairly and adequately. On the other hand, if IBA gives a nod to the wage settlement, the challenges ahead of the banking sector cannot be overlooked with a blind-eye. Hence for this issue to be settled amicably, both sides of the table will have to analyze it from a long-term perspective and arrive at a decision that is in the best interest of all stakeholders of the industry. How the matte gets settled would be unfolded in the days to come but both the parties will have to ‘step into each other’s shoes’ and analyze from a broader perspective, taking into consideration the demand of the employees but not neglecting the challenges and hurdles ahead.

 

This article has been authored by Aprajita Gupta, HR Manager from Andhra Bank



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