International Referred Research Journal ISSN-0975-3486 VOL.

- ISSUE- 8 RNI : RAJBIL/ 2009/30097

Research Paper—Commerce
IMPACT ON INDIAN BANKING SYSTEMS
THROUGH V.R.S.

* Dr. Pramod Kumar

May, 2010

* Reader Faculty of Commerce Govt. P.G.College Obra-Sonebhadra

Referred By—

A B S T R A C T
The advanced nations have adequate social security measures including unemployment insurance. As
such their voluntary retirement schemes have a smooth sailing. Further, in these countries, greater
transparency is clearly visible in the implementation of VRS. But in developing countries like — India,
the above stated elements are absent due to various reasons and also due to the special circumstances
prevailing here. (U.P.)
INTRODUCTION developed and developing nations like — USA, Canada,
It is estimated that, out of the 8.83 Iakhs employees Japan, India etc. opened up their economies to the
in 27 Public Sectors Banks, 2.5 lakhs are surplus. The market forces resulting in free flow of trade among the
federation of Indian chambers of commerce (ICC) and countries. India also is in tune with the global trends
Industry stated that the banking industries were over and undertook reforms process which is popularly
staffed by 35%. The Govt’s own estimate put the figure known as Liberalization, Privatization and Globaliza-
at around 30%, Hence, the major options before the tion in the early nineties. With the introduction and
PSB’s are retrenchment or VRS. But the policy of re- implementation of these reforms, the Indian industries
trenchment has practical limitations and more painful in general and the public sector banks in particulr have
due to the fact that, prior consent of the appropriate been witnessing keen competition from private sector
authority provided in the Industrial Disputes Act is a banks. The nationalized banks have seen their market
must. According to many, VRS is the only option as it share declining from 48.5% to 46.9% in advances and
offers attractive package of benefits. It also enables from 53.8% to 53.6% in deposits between March 1999
firm to rationalize labour, strength, attain cost effec- and 2001. During the same period, the private sector
tiveness and go well into strides once again. In this banks raised their share from 10.7% to 12.3% in deposits
paper. We would like to highlight the impact of VRS on and from 7.8% to 8.1% in advances. So, the real chal-
Public Sector Banks in India The entire World is under- lenge to the PSB’s market share comes from the new
going transition. The fall of Soviet Union, the merger private sector banks most of which are going retail and
of East Germany with West Germany amply proves the are in a major expansion mode. In terms of net profit also,
same. Another important aspect of this transition is public sector banks as a whole has declined by 16%
that, various economies in the world are moving to- from Rs.5116 crores to Rs.4316 crors. According to
wards capitalism from their either present communism Narasimham Committee, the banks have authority of
or socialism, during this transition process, structural redeployment of staff, cut in operating cost and reduc-
disturbances naturally take place resulting in severe tion of work force. It is estimated that, out of 8.83 lakh
losses to the economies concerned. Besides this, vari- employees in 27 public sector banks, 2.5 lakh are sur-
ous countries in the world started reforms process plus. The Federation of InJian Chambers of Commerce
during the late eighties. As part of reforms, process the and Industry, also announced that the banking indus-

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International Referred Research Journal ISSN-0975-3486 VOL. - ISSUE- 8 RNI : RAJBIL/ 2009/30097
try was over staffed by 35 percent. The Government’s CHALLENGES AND REALITIES OF VRS TO DE-
own estimate put the figure at around 30 percent. Hence, VELOPING INDIA1. A review of the utilization of NRF
the major ontioris before the PSBs are retrenchment or clearly points out the fact that it is used only for the
Voluntary Retirement Scheme (VRS) as a measure of purpose of VRS rather than achieving the duel objec-
cost reduction.Hence, some have thought of a less tives of VRS plus training and retaining the workforce
painful strategy, which may prove more acceptable to resulting in negative effect on productivity and effi-
all the employees resulting in the adherence to VRS ciency. In other words, NRF instead of chopping of the
choice rather than retrenchment. Concisely, PSB’s are dead wood is cutting off the live plants also. For in-
resorting to a strategy of VRS to downsize the work stance, in Indian Tourism Development (ITD) all quali-
force so as to adjust the manpower as per the needs of fied and skilled Managers and Cooks left it availing VRS
the organizations. Accordingly, to many, VRS is the in a short span of three months leaving Waiters and
only option as it offers attractive package of benefits. Servers to run its group of hotels. All the same, around
It also enables a firm to rationalize labour strength, 1100 talented Scientists and Managers of IDPL left the
attain cost effectiveness and go well into strides once organization leading to the grinding halt of the R&D
again. More than 1.25 lakhs (see Annexure-1) employ- activities as well as the Management of the Organiza-
ees of PSB’s including SBI group opted for the scheme tion. The same story was repeated in State Trading
availing benefits to the tune of Rs. 15,000 crore. Extrac- Corporation (STC) when it gave an option to its entire
tion payments alone amounted to about Rs.7500 crore, staff to avail the VRS scheme. Consequently, the young
for this purpose, the Government created a National and highly efficient Managers and staff left the organi-
Renewal Fund (NRF) to provide employees an oppor- zation to take-up senior positions in the private sector
tunity to seek voluntary retirement and also to train and export-import houses.
retain the existing workforce in the emerging high-tech To overcome the problem STC upgraded the
areas so as to absorb them more productively. The redundant staff to higher positions causing severe loss
benefits of VRS will Le visible from 2001 onwards. to the organization. 2. There are divergent views about
The scheme brought into force with certain the VRS scheme and its implementation. Some trade
accounting issues relating to booking of VRS related union leaders favourably view it while some others
expenditure such as ex-gratia payment and other termi- oppose it. However, some trade union leaders insist
nal benefits. Consequently, the accounting treatment that bilateral consultation should be a necessary con-
of VRS expenditure was specified in consultation with dition before the VRS scheme was formulated and
the Institute of Chartered Accountants of India (ICAI). implementd. According to Mr. K. Ashok Rao, President,
In particular, the banks were advised that unless ex- National Confederation of Officers Association. The
penses in the same period, the entire ex-gratia amount PSUs are paying Dowry in the form of VRS to enable the
as a result of VRS could be treated as an extraordinary qualified staff of PSUs to hop to the private sector. 3.
item and as Deferred Revenue Expenditure (DRE) and Some experts in the field of labour economics and in-
in view of the extra-ordinary nature of the event, VRS dustrial relations strongly feel that instead of relying on
related DRE would not be reduced from tier I capital. The adhoc assessment, the size of redundant manpower
banks are required to disclose in the balance sheet the should be worked out by systematic industrial engi-
accounting policies followed in respect of VRS expen- neering study and VRS should be implemented accord-
diture. The DRE would be restricted to a maximum pe- ingly in phases. They advocate that complete transpar-
riod of five years. The VRS Schemes are lopsided and ency should be ensured so that through prior consul-
more generalized and not in tune with the specific needs tation with workers could be taken into confidence.
of the organization. This is because, systematic studies This would make the implementation of VRS to be smooth
were not carried out about the number of surplus em- and effective. 4. A Mumbai based consultant Hemendra
ployees and workers in various branches of PSB’s. All K.Varma stated that VRS should be the last option and
the same, there is no specific way to segregate the not the first choice. According to him, VRS is not the
talented from the untalented. Consequently, instead of panacea to all the problems. He believed that, a number
getting rid of the dead wood in public sector banks, of problems other than VRS should be tackled first and
qualified and talented officers and employees are leav- set right.5. In the words of G.M.Bhalcey, President of
ing the banks. the State Bank of India Officers Association 22,000 rural
29 RESEAR CH ANAL YSIS AND EVALU ATI ON
International Referred Research Journal ISSN-0975-3486 VOL. - ISSUE- 8 RNI : RAJBIL/ 2009/30097
branches of PSBs have to be merged or closed down in people, particularly the good performers, start looking
favour of a satellite branch which will operate just once for openings elsewhere and leave at the first opportu-
a week. If these fears come true, rural India may be the nity.
biggest victim of VRS and it ruled out the basic objec- CONCLUSION
tive of banks nationalization. 6. According to Tarakeswar Some banks Chairmen are already suggesting that VRS
Chakraborthy, General Secretary, All India Banks Em- should be an annual feature and a sizable portion of the
ployees’ Association “We have repeatedly stressed staff have welcomed the idea. Perhaps VRS is the way
proper manpower planning and redeployment, but it forward if the Public Sector Banks are to convert them-
was not taken care of”. Prof.Ashis Bhattacharya, IlM, selves. VRS is designed to address the need of an
Kolkata, said that “The VRS in banks appears to have organization to remove excessive and unproductive
been based on overpayment and was therefore bad”. staff from amongst its ranks and enable it to reorient
Prof.Sunil Kumar Maheswari, IIM, Ahmedabad said itself into a leaner and meaner organization. The VRS
that “In Indian conditions, VRS acceptance will remain design should take into account, It is essential to build
the last resort with employees unless it is extremely a generic profile of the employee before designing the
attractive”. 7. RC Agrawal of the Central Bank Officers scheme Before designing a scheme, one needs to con-
Association agrees, “No work is the biggest punish- sider whether the payments should be made in one
ment, our Society looks upon VRS as a stigma, they feel lump-sum or as a form of annuity, or a mix of both. It can
that something must be wrong with the person. More- succeed only if there is a special stimulus enabling the
over money is never retained, your special contacts employee to decide in favour of taking the VRS. Coun-
ensure that it is spent,” stated Agarwal. VRS is not quick seling should focus on providing the requisite guid-
fix for today’s ailing organizations — the truth is there ance to the worker to enable him/her to focus on build-
are not quick fixes. Only organizations like PSBs that are ing a future career and being productive again. Again
willing to go the long haul by firm, tough, bold and it should provide financial counseling to ensure rea-
honest management practices will survive. sonable and sustainable deployment of VRS payments,
WHAT NEEDS OF VRS ? in terms of investment options and savings planning
When the country’s public sector banks began draw- for the future. Both Pre-VRS and Post-VRS counseling
ing up their voluntary retirement schemes to bring down sessions require counsellers who would be able to
the industry’s total workforce from the hefty 8.8 lakh address the psychological needs of the worker and
figure, they did so with some trepidation. Why the rush provide mental support. One good way to do a VRS is
to exit from PSU banks? One of the reasons, clearly, is to follow some practices (i) giving advance notice (ii)
the attractive package being offered by the banks with helping them to identify their present skilisets (iii) nomi-
many other benefits. Another reason is the fear of the nating them for skill development programmes and (d)
retirement age being reduced from 60 to 58, which has helping them in getting jobs by internal advertisement
led to the older among the bankers seeking to quickly of the requirements. The VRS has now become a basic
exit at a price. In addition, the fact that the cabinet has component of the labour adjustment strategy of public
just decreed the reduction of Government Equity in sector banks to weed out inefficiencies and make the
PSLJ banks to 33 percent has also played its part. Many industry more competitive and cost effective under the
new economic set-up.
R E F E R E N C E
1. Dalbir Sing,Chairman, lEA and CMD, Central Bank, Dealing with Surplus, Business India, July, 22 — Aug, 4, 2002. 2. B.S.Srinivasulu Reddy,
Banks Discount Life After VRS, Warts and All, Financial Express, 27-07-2002. 3. Dnyanesli V. Jathar, Officer’s Choice, The Week, April,1, 2001.
4. S.R.Sen Gupta, Voluntary Retirement Scheme in PSB — A Retrospect and a Challenge, A Study report, June,200L 5. Corporate News, More
Companies Join the VRS fray in Quarter2, Capital Market, Feb.4- 17,2002. 6. Editorial, VRS Story, Economic and Political Weekly, Jan.20, 2001.
7. Aloka Majumdar, Rush for the Exit, Business India, Nov. 27, Dec.10, 2000. S. Financial Express Banking Bureau, VRS not Favourable for
SB!, May Dilute Shareholsler Value, The Financial Express, June 20, 2001. 9. Tushar K.Mahant, VRS Helped Banks Shed Their Flab, not Wage
Outgo, Econonic Times, May 13, 2001. 10. Hemendra K.Varma, Chief Executive, A Consultancy Firm, Mumbai, VRS the New Quick Fix Indian
Management, April, 2000. 11. E.T. Political Bureau, Bold VRS Proposal is Actually a Diluted Version, Economic Times, Feb.7, 2002. 12. B.P
Gupta, VRS in Indian Industries, Indian Journal of Industrial Relations Jan., 1996. 13. KR Muralidharan, Implementation of Voluntary Retirement
Scheme — Some Issues, Productivity, Vol.37, No.2, July-September, 1996. 14. Tamal Bandyopadhyay, Why the Bank VRS worked or Did it?
Indian Management, April, 2002. 15. Ashis Battacharya, IIM, Kolkata, VRS will be the Rule Rather than the Exception, Indian Management, April,
2002. 16. Sunil Kumar Maheswari, The Focus isShifting from Production to Productivity, Indian Management, April, 2002.
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