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Human Capital in Banks Emerging Challenges



N S N Reddy, AGM, Andhra Bank [

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Around the world, finance is one important common thread which brings many sectors together and acts as catalyst for economic development of the country. Thus, Banking is considered as backbone of the economy and it is more so with emerging economies like India as it play significant role in channelizing the resources to the needy sectors for desired growth. The growth story of Indian Banking industry is quite interesting and fascinating both in terms of quantitative and qualitative aspects.

 India has well diversified financial system with preeminent presence of banks spread across length and breadth of the country. The dominant players in this space are 26 Public Sector Banks, 21 Private Sector Banks, 34 Foreign Banks and 82 Regional Rural Banks with a branch network of above one lakh and 1.2 lakh ATMs. For the year 2013, the deposit and advances of all Scheduled Commercial Banks (SCB) stood at Rs.69.43 lakh crore & Rs.54.30 lakh crore respectively.  Probably Indian Banking is a unique system catering to the financial needs of more than 600 million people with diversified products and services. 

The success of any organization lies on the availability and effective utilization of human resources and it is more so with service organizations like banks. Today, Indian banks are operating in a liberalized and technology neutral environment where there is little product and price differentiation exists. Therefore, to sustain and grow further in the fierce competitive sphere, banks are necessitated to focus attention on Human Assets since the delivery of service is only the differentiating factor which crucially depend on the attitude and efficiency of the staff interacting with the customers. In the above backdrop, Human Resources has attained utmost importance and banks have been evolving appropriate strategies to attract, manage, develop and retain these assets to meet the emerging challenges.

Evolution of Human Assets:

The banking industry has become one of the major employment providers next to Government services since 1969 and the details of staff strength of all Scheduled Commercial Banks (SCBs) along with incremental change is furnished in table no.1.

Table no.1 - Staff Strength of all Scheduled Commercial Banks


Staff Strength

Incremental change

1971 -72



1979 - 80



1989 - 90



1998 - 99



2008 - 09



2011 - 12



Source: A Profile of Banks published by RBI

The number of employees in SCBs increased by 3.3 times i.e. from 2.97 lakhs in 1972 to 10.13 lakhs in 2012 in four important phases viz.,

1. Post Nationalization Era (1970 to 1980):

The first phase of nationalization era directed the banks to open more branches across the country including remote rural areas and the banking was undergone a sea change from Class Banking to Mass Banking. To handle the increased branch network and its operations, banks started recruiting substantial large pool of young people and most of the recruitments were confined to specific geographic area. Banks were paid attention to recruit clerical and junior officers to handle frontline operations. The incremental increase of staff strength of SCBs during the period was 3.23 lakh and with this the total strength was doubled from 2.97 lakh in 1972 to 6.21 lakh in 1980.

2. Pre Reform Era (1981 to 1990):

To have PAN India presence, Banks were resorted to branch expansion spree with diversified activities, which necessitated the banks to recruit suitable staff to handle the increased business volumes. In the above backdrop, Banking Service Recruitment Board was set up in the year 1980 to undertake recruitment process for PSBs. The better pay package for bank employees (compared to other industries at that point of time), promising career path and social status attracted many well qualified talented youth to banking industry. This era also witnessed recruitment of Chartered Accountants, Rural Development Officers etc, in large numbers to handle inspection and credit functions at controlling offices. With this, the staff strength of banks increased from 6.21 lakh in 1981 to 9.80 lakh in 1990 with incremental increase of staff strength by 3.60 lakh. It was a golden period for the educated young people and the decade known as “Decade of Recruitment”.

3. Post Reform Era (1991 to 1999):

In the wake of financial reforms, banks started focusing attention on implementation of prudential norms and business development. Thereafter, a period of consolidation began and recruitments slowed down on account of restrictions imposed by the Government. However, all banks have under taken recruitment of specialist officers like MBAs, financial analysts, agriculture graduates, marketing officers, IT officers, on a small scale to leverage the new areas of banking business. The incremental increase of staff strength was just 0.37 lakh, which is quite low compared to earlier years.

4. Post VRS Era (Beyond 2000):

Besides adoption of extensive technology (Core Banking), the Public Sector Banks has witnessed another two important events during the early years of 21st century viz., Scrapping of BSRB and implementation of Voluntary Retirement Scheme (VRS), which impacted the PSBs staff strength and its composition. Around one lakh staff members opted for VRS and majority belong to Officer and Clerical cadre.

The Liberalized Branch Licensing Policy enabled many private players to enter into banking business and made in roads into Urban and Metro areas and garnered considerable market share by adopting innovative business models backed by strong technology platform.

While PSBs consolidating their position, the new generation private sector banks have expanded branch network with large scale recruitment of officer staff from 2001 onwards. These banks recruited around 1.42 lakh officers during the last one decade. The movement of staff strength in PSBs vis-à-vis Private Sector Banks in post VRS period is furnished in table no.2.

Table no.2 - Staff Strength of PSBs vis-à-vis Private Sector Banks (in lakhs)


Public Sector Banks

Private Sector Banks

2001 - 02



2005 - 06



2009 - 10



2011 - 12



          Source: A Profile of Banks 2011-12 published by RBI


Despite intermittent officer recruitments over the years, the staff strength of PSBs has come down from 7.57 lakhs in 2002 to 7.40 lakhs in 2010 on account of VRS and increased attrition levels. However, marginal improvement (0.31 lakh) was observed in 2011-12.


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Human Resources - Emerging Challenges:

Though, lot of efforts have gone into bringing technological & process congruence in the recent years, very little has been done on human resource front by PSBs, which is cause of serious concern. The emerging challenges are:

1. Massive Retirements:

Out of 7.71 lakh PSB employees as on 31.03.2012, around 3 lakh employees (38% of work force), majority of them joined during 1970s & 1980s, are due for retirement in the next few years. Similarly, equal number employees who joined during 1990s will be retiring from later years of this decade.  The current decade can be known as ‘Retirement Decade’ which is likely to pose demographic risk. As per BCG Report around 80 percent of middle management and 50 percent of the Junior officers will be attaining superannuation by 2020. PSBs are going to face unprecedented problems in the area of HR in the next few years as crucial competencies and know-how will be lost especially in senior management and middle management levels.

2. Employee Mix:

Historically, banks have been adopting a uniform three-tier Human Resource (HR) model where the frontline staff (mostly clerks) undertakes entry related jobs, the officers authorizes such transactions; and the movement of ledgers/vouchers are being carried out by subordinate staff. To cope up with the demand, banks continued to recruit staff with proper mix over the years. The Business models that are being adopted by PSBs require more frontline staff than supervisory/managerial staff since Maker & Checker concept is in vogue. However, over the years, the clerk to officer ratio has come down from 3 in 1972 to 2 in 1990 and further reduced to 1 in 2009. The clerk to officer ratio is furnished in table no.3.

Table no.3 - Bank Group-wise Officer Clerk staff strength for the year 2009





Clerk to Officer Ratio


Public Sector Banks





Old Private Sector Banks





New Private Sector Banks




Source: IBA Reports

While the clerk to officer ratio of PSBs stood at 1.15, which demonstrates the co-existence of officers and clerks in equal number where as the ratio is zero for New Generation Private Sector Banks, amplifies the exclusive presence of officer cadre on account of extensive adoption of Alternate Delivery Channels for customer related activities besides outsourcing the routine and mundane jobs from the first day of their operations.

Among PSBs, wide variations are observed in Clerk to Officer ratio, ranging from 0.24 to 1.58, which needs immediate attention of the banks for adoption of suitable business / HR models to make use of available resources optimally. The frontline staff of the branches shall be manned preferably by younger personnel to cope up with the fast changing business environment. At the same time, the experienced staff may be relocated to handle control and compliance assignments, so that their expertise may be fully utilized.

3. Suboptimal utilization of Sub-ordinate staff services:

The high presence of subordinate staff strength among PSBs i.e. 1.74 lakh (23% of total workforce), is another major challenge since majority of branch operations are taking place either through paperless mode or outsourced and hence there is lesser need for subordinate staff. Banks need to adopt suitable redeployment exercises and also upgrade subordinate staff skills to promote them to clerical cadre in a phased manner for optimum use of their services for business development.

4. Increased Attrition Rate:

Gone are those days where employees used to stick to the same organization till superannuation. Hopping of the jobs for greener pastures is the order of the day for the present generation. Of late, the attrition rate is alarming (around 30%) among newly recruited staff on account of suboptimal pay package, increased work load, improper placements, poor working conditions and absence of career path in PSBs.

5. Talent Acquisition:


Banking being service-sensitive, the customer’s requirements are to be handled with utmost care by the staff with knowledge and positive attitude. The increased business volumes coupled with discerning demands of the clientele warrants the banks to pay special attention on recruitment, training and deployment to transform its Human Assets in to Knowledge Assets. Attracting talent and retention of talent have emerged as latest challenges in the light of dynamic economic, social and demographic environment. Banks need to focus their attention on the following emerging issues while planning for human resources.

Ø  Though, convenience banking (e-banking) is gaining momentum over the years, conventional banking (branch banking) continues to be on the agenda of the banks as customers prefer relationship banking either paying visit to the branch or expect the bank to provide services at their door steps.

Ø  Lending being a focused segment, there is an urgent need to develop specialized skills in the area of appraisal, monitoring and Recovery to ensure the quality of credit portfolio. In this direction, some banks have already introduced centralized model for sanction and recovery of loans and others may follow the suit in the ensuing years.


Ø  Emergence of niche players in specialized business segments viz., Housing, Cards, Mutual funds, Insurance, sharing of infrastructure including ATM Network is going to be the order of the day.


Ø  Today, the banking has become imperative and all house-holds across the country irrespective of their social and financial status and they expect minimum financial services from the banking system.


Ø  Increase of young population coupled with burgeoning middle income group segment is going to be another important growing area for banking business.


Ø  The increased infrastructure development across the country is blurring the geographical barriers and making the rural populace on par with Urban. Hence, banking in rural areas needs relook in extending of services beyond mere opening of accounts and lending against crops. Banks may look for alternate cost effective business models to tap this segment.


Ø  Strategic alliances/partnerships with national and international players for business development as well as other income.


The future banking space demands total transformation in the area of recruitment, training and deployment of staff and the banks need to focus attention on the following important/critical areas while acquiring talent from the market:


Ø  Providing delightful service to the customers is a must for which the branches need staff with product knowledge and orientation towards customer service. This segment needs human resources with normal educational back ground coupled with positive attitude towards customers.


Ø  Marketing is another important area in the changed scenario since it plays vital role in taking the bank’s name to the market for brand building thereby business development. To handle this segment, banks require young and energetic human resources preferably fresh graduates.


Ø  Rural Banking has immense potential for business development. The present recruitment policies of the banks are in favour of the persons hailing from Urban/Metro areas, who normally may not prefer to work in rural areas, which is a hindrance for smooth banking operations in rural areas. This may be addressed by adopting suitable models to attract local talent.   


Ø  In order to meet the global standards and to remain competitive, banks will have to recruit specialists in various fields such as Treasury Management, Credit, Risk Management, Forex, IT related services, HRM, etc.


6. Age Profile – Mismatch:


The average age of PSBs staff is around 50 to 52 as against 30 to 35 of private sector banks, which has direct bearing on the performance of the banks. The proliferation of age profile of PSB employees is another major area of concern since the growing organizations require energetic and adoptive work force to deliver qualitative services to the customers especially the booming young segment who look for instantaneous, value added and cost effective tech savy services. Of late banks have started recruiting staff in large numbers and in the above backdrop, the industry is going to face peculiar challenge – Yawning Generation Gap as younger age group, below 30 years, employees are on the rise while majority of the remaining workforce will be entering into above 50 years age group. This emerging manpower profile will leave a generation gap between the young cohort of new hires and the experienced employees to whom they would report, which need to be addressed suitably.


7. Re-skilling:


The formidable challenge before PSBs is to the need to learn new practices while “unlearning” long-standing practices that are no longer a best practice. The business model of the past was founded on a predominance of back-office skills. The new business model, enabled by new technology, requires that additional skills be devoted to sales and customer service.

A recent survey on Transforming Indian Banking has very interesting findings — 30 per cent of customers surveyed said they do not feel emotionally attached to the bank and given a chance would not select the same bank again nor would they recommend it to friends and family. The answer to this wariness is obvious — poor customer service which can be addressed through relationship banking. Currently, PSBs have a young breed of bankers joining the ranks through aggressive recruitment drives. Coupled with an aging workforce, what comes to the fore is the importance of inducting talent, skilling new recruits, re-skilling experienced professionals with soft skills and leadership, and most importantly sensitization to customer requirements.

8. Talent Retention:


In the last three years, PSBs have hired over 1.72 lakh people and, according to industry estimates, banks are going to recruit another one lakh people in different cadres during the current financial year. Talent retention is another major challenge for the banks since the present generation of employees tends to opt for job hopping for better prospects. Hence, PSBs are necessitated to focus attention on Employer Branding, Integration of HR with strategic vision & mission and business goals and introduction of performance linked placements, promotions and incentives to retain the talent besides initiating the steps to enhance the skill sets of the employees on an ongoing basis through appropriate training programs. Fruitful on-boarding experience especially in the first few formative years will go a long way in building strong relations and they likely to remain with the bank.


9. Performance Management System:

 Another area of concern is absence of proper Performance Management System (PMS). In fact PSBs are facing a peculiar situation with regard to staff that are “promotable” but not “postable” and people who are “postable” but not getting promoted. This is because we have failed to discriminate between performers and non-performers. PMS should throw up future leaders, who are expected to do three important things viz., Plan, Inspire and Deliver. A time has come to PSBs to introspect whether we are on the right track to groom the leaders within the organization.  The need of the hour is to draw senior/experienced people and form a team with a specific assignment of “Career Coach & Mentor” to execute comprehensive plan of “Future Leaders”.


10. Non Traditional work relations:

 The key driver that motivates people in the knowledge era is not livelihood or job satisfaction but is the feeling of empowerment. In the changed scenario, the work force will get complex and banks need to juggle a wide variety of people with varied needs and preferences, resulting in an array of relationships – Regular / Part time / contractual / Regular on flexi timings etc. Peter Drucker had, more than a decade ago, expressed the need for what he called “non-traditional” work relations - flexible schedules, contract arrangements, virtual teams, etc.


11. Two-way communication:

 Much of the communication in the banks is one way i.e. top down, which proved as weak and non-functional in many cases. Free flow information is a prerequisite to enhance transparency, thereby imparting credibility among employees. Technology tools like intranet, interactive portals, corporate e-mails, internet, social networks etc. can be adopted to reach out to employees. Innovations in employee engagement and creative ways of interacting with the frontline would greatly facilitate alignment between executives and the field staff.


12. Succession Planning:


Banks need to have pool of qualified and potential work force especially at top level not only to lead the team at present but also to meet the future requirements of the organization. Although most PSBs identify succession planning is an important but little has been done in this regard. Banks have already started experiencing the gaps and likely to continue the situation in the ensuing years also. Of late, to tide over the problem, banks have adopted quick promotion system without exposure to leadership grooming, is really a challenge to PSBs. Hence, there is an imminent need to identify potential candidates for future leadership and groom them through a comprehensive strategy with formal and informal inputs on an ongoing basis.

13. Realignment of Business Models:

Today, most of the Public Sector Bank branches undertaking multi tasks including deposit mobilization, processing of credit proposals, recovery of loans, selling of various fee based products with staff having normal banking background, which is causing to customer grievance since they expect instantaneous qualitative service, which PSBs are unable to provide especially in emerging areas such as Retail/Corporate lending, NRI services, Financial & Advisory services etc. The issues before PSBs are: 


Ø  Whether bank branches to continue the hierarchy approach or move towards lean business models?


Ø  Whether to continue the existing decentralized approach or to move to centralized credit processing?


Ø  Whether resource mobilization activities are to be outsourced or to continue with the branches?


Ø  Whether marketing of third party products such as insurance, mutual fund etc., are to be handled by the branches or to be entrusted to Direct Selling Agents / Bank subsidiaries?


Further, the increased income levels and demographic trends necessitating the banks to revisit the existing business models and the adoption Next Gen Consumer Models for sustained growth rate. The adoption of new business models warrants realignment of human resources besides structural adjustments.



 The spread of education and employment opportunities coupled with financial inclusion initiatives may usher banking habit among the masses and likely to add another 700 million accounts taking the total client base to 1300 million by 2030. Large population with high working age group is an important factor to boost economic growth further. This scenario is likely to add more number to Middle Class group which has different spending patterns. The increase in working-age population leads to virtuous cycle of increased income levels, structural rise in savings, greater investment and higher demand for goods and services. Finally, it leads to greater demand for financial services.

 The Herculean task poses challenges, which warrants the banking industry to increase the branch network by two times and ATMs by 5 times in the next two decades. Adoption of low cost viable business models with delivery of Simple, Convenient and Value added products/services is the need of the hour. But this growth will need a large number of people. In order to cope up with the increased demand for banking personnel, there is an urgent need to introduce exclusive courses for Banking & Finance in the colleges & universities and also examine the need for setting up of Specialized Banking Institutions for the benefit PSBs as well as the students.

 Though, banks have been recruiting in large numbers, majority of them are not evincing interest to work in rural areas. Ironically, there are still large numbers of young people with average academic background in Rural and Semi-Urban areas, who are eagerly waiting for employment opportunities. It is the time for the Banks, Government and Regulators to pay focused attention on the above issues and initiate necessary steps to bridge the gap through providing employment opportunities to the unemployed youth for sustained growth of the banking industry and the economy.

 Manpower planning in PSBs should follow a lifecycle approach - from the time of recruitment of an employee to his retirement. Further, this needs to be integrated with the Business Plan and strategy of the bank. While planning recruitment, it is very important to develop “employer brand”. New generation workforce will be working alongside an older generation as a team which invites Change Management. It is the time to transform the HR processes and implement the new age concepts inviting innovative ideas to make the banks ‘future - ready’.



 i) Report on the Committee on HR issues of Public Sector Banks – June 2010

ii) Indian Banking 2020 – Opportunities and Challenges - BCG Report

iii) Dr.K.C.Chakrabarty,  Dy. Governor, RBI address at Mumbai on 1st June 2012

iv) “Dare to Lead” authored by Sri.Anil K Khandelwal

v) Business Line report “Winning the war for talent” published on 05.11.2011

vi) Bancon 2012 - Conference Papers


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