The flawed people’s management is adding to the woes of India’s state-owned banks
By: Ritesh Indonomics
Tags: Profit, Performance, Customer Focus, Banks, HR

Image source: The Financial Express

One major aspect of Indian banking crisis that has not got much media attention is the human resource mismanagement in state-owned or government banks. Poor people’s management is equally responsible if not more, for the lack of customer focus, operational inefficiency and in turn, low profitability of government banks vis-a-vis their private sector counterparts. Unless, it is addressed, things will not really improve whether we recapitalise these banks or reduce government stakes in them, or not.

Like many things in government banks, human resource (HR) is one of the most mismanaged. Post, the bank nationalisation, hiring of personnel was done through banking services recruitment boards (BSRBs) which brought in a national cadre of competent people. Foreign banks having presence in India as well banks in the Gulf region used to lure away employees of state-owned banks to work for them. Yet, public sector banks were not short of quality staff. However, with the full-fledged entry of private banks in the 1990s, things started to change with top talent moving to better paying private banks.

With declining quality, HR in government banks is no longer about merit but about bureaucracy and its inherent flaws. A culture of pleasing one up the hierarchical ladder prevails. So rather than focusing on business growth, a branch manager (BM) tries to keep his regional manager (RM) in good humour, an RM his GM, and the GM tries his best to manage executive directors or chairperson for improving his promotional prospects, says an industry veteran. Similarly, a typical bank chairman is often appointed because of right connection rather than right competencies. Hence, he tries to keep those people (who got him the job in the first place) happy by being useful.

In a thriving culture of sycophancy and nepotism, personnels are transferred on whims and fancies of top bosses or influenced by bank unions or on recommendations from bureaucrats or politicians but not often on merit. And certainly not after any serious deliberation about the suitability of transferees to specific roles. There is more emphasis on matching the hierarchical ranks. Thus, when an assistant general manager (AGM) leaves/transferred out of a branch, another AGM is asked to replace him irrespective of the gentleman’s specialisation or previous work. Thus, an HR or legal specialist with no experience in commercial banking can be asked to head a bank branch. Once appointed as the branch head, he or she at once becomes a jack of all trade and is expected to lead every function from sales and marketing to credit appraisal and loan sanction. The result is mis-employment and under-employment. In such a scenario, intended (or unintended) sub-prime lending is bound to happen. Directed lending, and/or loans to politically connected cronies add to the problem.

The system of promotion and career progression in government banks is good only in theory. A person who has got a bad rating (which are often assigned arbitrarily with no detailing of justification) or reprimand for poor performance this year, can be promoted next year if he or she is able to manages the right people. Though, there are sales targets such as number of accounts to be opened, deposits accumulated or number of mudra and other loans sold in a month or quarter, they are not strictly enforced unless an employee is really in the bad book of top bosses. Variable pay or monetary rewards based on performance are given only to executive directors (EDs) and chairpersons. For the rest, there’s no performance-linked pay, so in practice, performance is not incentivised.

To make matters worse, a typical low to mid-level bank employee can’t be transferred if he or she doesn’t want promotion or career growth. Sadly, there could be many employees who are fine with that as they might not be looking for promotion but local posting nearer to their home towns so they could take care of family business from the side.Thus, for such non-performers, no promotion combined with no transfer is not actually a punishment, but this is how it is.

Sincere hard work doesn’t pay well in government banks — one is not punished for inaction but even for simple mistakes, punishments could be harsh. On a day-to-day basis, when any wrong happens, the priority is to find a scapegoat rather fixing accountability through proper investigation or introducing preventive reforms, in an environment of uninspiring leadership. This promotes risk-avoidance rather than risk-management among bank employees.

Each state-owned bank has its own training institute where the employees are imparted minimal training by insiders. Outside voices or experiences are not shared. Forget private banks, deputation to other government banks or government departments or PSUs is strongly discouraged. As a result, a typical government banker doesn’t know what’s happening outside e.g. in other Indian banks or foreign banks, for that matter. Jobs become monotonous and employees de-motivated.

The way forward

It’s time to introduce 360 degree appraisal for managerial staff including compulsory feed back from top customers.That will discourage complacency and lead to focus on improving customer service. Further, to infuse a culture of performance, the use of carrot and stick policy is urgently called for. Thus, introduction of a measurable performance based reward and recognition system including the provision for monetary incentives for all performing employees could improve motivation and customer focus. Similarly, non-performers should compulsorily be transferred out of their preferred branch or region while top performers should be given choice postings. Deputation to all kinds of organisations should be encouraged by doing away the need for any official approval. That will bring fresh ideas into near closed state-owned banking system.

To ensure employee buy-in, big picture financial targets and major organisational plans should be shared with all employees on a regular basis. Training by both internal and external experts including motivational speakers will help improve employee morale and in turn performance. Again, any transfer and posting must be based on right fit — matching position with suitably skilled employees, and not based on whims and fancies of top bosses or under influence from any vested interest. The above changes will help help transform the work environment in state-owned banks, aid efficiency and improve profitability.