‘Missing middle’: HR challenge plagues public sector banks

Faced with the difficulty of paying competitive salaries, the State Bank of India is recruiting some employees on contract at the junior level, and using specialists to fill up critical mid-level vacancies.

“We have some difficulties in giving market-related salaries. What we are trying to do is to get some people directly from campuses on contract at the lower levels,” said SBI Chairperson Arundhati Bhattacharya at SBI’s Banking and Economics Conclave held recently.

“Obviously, this obviates their ability to have a career with us and therefore may not be that attractive. However, we try to explain to them that even if they had gone to some other bank, their propensity to change would be quite high. So, even if they get five-six years with SBI or SBI Caps, it’s actually very good.”

Highlighting the constraints faced by public sector banks (PSBs), she admitted that they did suffer “a bit of a missing middle, so to speak”.

“We are trying to get specialists, such as legal experts and chartered accountants. We take them in at a higher level and therefore we are able to give them a higher salary.

“We are trying to see whether our subsidiaries can recruit people and depute them to us. So, it’s a mixture of things we are doing but it’s a major challenge,” she said.

PSBs have been facing a human capital challenge for a while now, following a recruitment freeze in the 1990s, termed as the “retirement decade” by former RBI Deputy Governor KC Chakrabarty.

These banks are staring at the imminent retirement of about a quarter of the 1.5 lakh mid-level managers. They are due to retire over the next three years, creating a vast leadership vacuum.

“Promotions have taken place so rapidly because of the retirements at the top that there are challenges in not only mid-management but even at the top level, since you are pushing people up too fast,” said Anil Khandelwal, former chairman of the Bank of Baroda, who also headed a government-appointed committee that looked into human resource issues at PSBs.

He said the challenges are not merely quantitative but qualitative and can be met only by skill development, competition and leadership.

“There needs to be rigour in the promotion process and not merely filling up of vacancies,” he added.

In July, RBI Deputy Governor R Gandhi had also pointed out that PSBs are increasingly witnessing many young officers at the top.

“While this can bring fresh perspectives on various issues, it is also a fact that given the strategic importance of leadership at the top, it is important to understand the training requirements of top management and fulfil the same,” he observed.

Also, expressing anxiety that new private banks may increase the competition and poach talent from PSBs, SBI’s Bhattacharya, at the conclave, requested the RBI Governor to give apt recommendations to the government.

“More worrisome is that as these new players come in, they have much ‘lower’ models. In the sense, if they operate in a particular State, they recruit the locals. But for us, to recruit for the North-East, we have an all-India examination,” she said.

The SBI chief further said that up to scale-3, PSBs are quite competitive in terms of salaries, but the problem occurs when it comes to scale-4 and 5.

At the higher scales — after scale six (deputy general manager level) — the salaries tend to stagnate. This makes it easy for private banks to woo them with higher salaries, she said.

Echoing the sentiments, RBI Governor Raghuram Rajan said the banking regulator itself encounters a similar problem. “The inability to recruit from campuses of specific talents that we want, are the issues we have to deal with...”

“I think one question to ask is what will be the cost to increase the remuneration at higher levels to more of market-like salary? And, could that be compensated by more efficiency at the lower levels? Are there ways to do the same activities without increasing the cost?” he sought to know.

Bhattacharya suggested employee stock option plans (ESOPs) as a way to make the top management committed to the bank over a longer period.

“It is something that we have already taken up with the government. I think being a profit making entity, it is possible,” she added.