Bank strike called off but truce is temporary; full autonomy for banks only solution

State-run banks cannot afford to hold on to their archaic methods of functioning and wage settlement if they want to retain their market share

Dinesh Unnikrishnan February 24, 2015 09:53:08 IST
Bank strike called off but truce is temporary; full autonomy for banks only solution

After weeks' long negotiations, strike threats and hard bargaining, the bank employee unions have agreed to withdraw their latest round of four-day strike threat, after agreeing with the bank managements on certain key demands.

As part of the agreement arrived with the Indian Banks’ Association (IBA), the industry lobby of bank managements, bank employees will get a 15 percent wage hike during the 2012-17 bilateral wage contract and also two Saturdays off from work every month.

This was not the first time trade unions, which claim support of about 10 lakh employees, majority of them from 27 public sector banks, are striking work demanding a wage increase since the last five-year bilateral contract between United Forum of Bank Unions (UFBU) and IBA expired in October 2012.

This is indeed a victory of the pressure tactics applied by the bank unions even though the final figure of wage hike came lower than the 19.5 percent hike previously demanded by employee unions. “We had to somehow avert the strike,” said a senior IBA official.

At a 15 percent wage hike, the burden on banks’ managements will be Rs 4,725 crore. If one combines this with the arrears of pension and other perks, the figure will rise to over Rs 8,000 crore. The new contract will come into effect retrospectively from November 2012 for a five-year-period.

Bank strike called off but truce is temporary full autonomy for banks only solution

It is a victory for bank unions even though the final figure of wage hike came lower than their original demand. Reuters

The financial impact of a 15 percent hike will not be much on state-run banks, since they have been making provisions on wage since November 2012 after the expiry of the last contract.

Since the IBA is likely to sign the contract with unions only by April after working out the details of the agreement, the actual impact of wage hike on banks earnings will reflect only in the fiscal year 2016.

But, the point not to be missed here is that the truce arrived between the IBA and the bank unions will be temporary and the whole cycle can very well repeat after two years from now when the next bilateral contract kicks in post 2017, resulting in more strike calls and possible disruptions in normal banking services.

The simple reason is the widening wage gap of staff in the public sector and private sector.

This will not augur well for aspiring state-run banks, which are struggling to retain their market share, at a time when deep-pocket, tech-savvy rivals compete in the market to attract new customers keeping quality of services as the differentiating factor.

Over the years, the market share of state-run banks has come down sharply to a little above 71 percent of the banking industry by assets.

As competition intensifies in the banking sector with the entry of big and small banks, wages in the private and foreign banks, which are already much higher than that of public banks especially at the middle and senior levels, will likely shoot up at a faster rate.

Besides bargaining with the unions on wage hikes, the widening gap in compensation levels could also result in higher employee attrition in state-run banks.

The long-term solution, as Firstpost has pointed out before, is to accord operational autonomy to public sector banks by lowering the government stake below 51 percent in these entities in line with the recommendations of the P J Nayak committee on banking sector reforms.

Freeing them from the micromanagement of the government in their daily operations will also enable public sector banks to set their own compensation structure in line with the size of the business of the bank, the performance of individual employees and the industry trends.

State-run banks cannot afford to hold on to their archaic methods of functioning and wage settlement, if they need to retain their market share in the changing landscape of banking industry and stay relevant.

If they do, they stand to lose heavily in the competition.

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