Investment Advisory Service

Friday, 17 March 2017

​​97 everyday and counting ?

A casual conversation with a PSU bank officer a few days back highlighted the problem that the PSU banks are staring in their face. It's not NPAs. NPAs is a known devil. The other piece which goes unnoticed is the human resources, or rather the absence of them. The bank officer mentioned that around 120-125 employees are retiring every month from his bank and it is becoming almost impossible to drive business or even to maintain business.

PSU Banks have a market share of 75% of the total deposits and around 75% of the total advances. They have a large market share of an industry which is expected to grow at a rate of 15-20% per annum.

I checked about the problem of human resources at the PSU Banks.

As per a question answered by the Government of India in Rajya Sabha in March 2015, the total number of employees in PSU banks as on 31.12.2014 were 851,308. In an answer to another question during March 2015 in the Rajya Sabha, the Government submitted that around 25% of the employees of banks are expected to retire by 2020. This means that around 213,000 employees would retire during the period of 6 years (CY 2015- CY 2020). This is an average of 35,471 employees retiring every year or 97 employees retiring everyday (including Sunday) till 2020. RBI has termed 2010-2020 as the decade of retirement for the PSU banks.

A large number of these would be people having experience in the critical areas of project assessment, appraisal. Also, this number does not include people who would resign and move over to private organizations. Sure, the banks will try to fill up the ranks quickly but it is easier said than done. And the new joinees would lack the experience required to write loans and recover the ones already lent.

In the light of such a cocktail (large NPAs, weak balance sheets and absence of experienced people), it is very likely that public sector banks will cede large slices of market share to private players which includes private banks, small finance banks, MFIs, NBFCs, payment banks etc.

Disclaimer : No investment recommendation.


Ayush said...

Isn't it a positive too? Lot many of these employees would be out-dated and a liability rather than an asset. Also, with automation rapidly catching up, PSUs may do better by adopting a mix of technology and better talent?

Ayush said...

Isn't this a positive too? Lot many of these employees would be out-dated and more a liability than asset. By adopting new technologies and fresh talent (in a country like India where en-employment is huge), the banks have a chance to upgrade and do better?

Ofcourse, some of them will be good, experienced and honest and they will be hired by Pvt banks to do well.

Ankur Jain said...

Hi Ayush,

You are correct. The PSU Banks would be better off with some of the employees being no longer on the rolls. But good ones are also getting retired. So, it's a mixed bag.

On automation, my take is that yes, it can help banks to automate a lot of repetitive low rung jobs in banking - ATMs, account opening and other back office jobs have already been automated to a large extent. The PSU banks will have to be proactive in taking up the next level of automation which would be a challenge for them given their weak financial strength and their aversion to change.

Also, my sense is that experience to appraise a project, understanding risks surrounding it and structuring an agreement comes with time. Just like Buffett's quip of having a baby : It will take nine months for a woman to have one. Nine women for a month won't do. Similarly, no matter how talented the new officers are, no degree and no technology can replace experience.

So, the PSU Banks are losing their experienced people due to retirement and migration to private financial institutions. Technology can help up to some extent but lending (large sized loans) requires skills difficult to be provided by technology and anyway private banks will a few steps ahead in adopting next generation technology also.