why we need more jio-styled cos, and psu need to cut costs

the world is becoming ultra-competitive, all thanks to greater than ever dissemination of information through electronic means. today, no company (except those with cutting-edge tech like google and microsoft) operating in a specific industry can expect to be the sole beneficiary of demand for a particular product/ service. margins are getting thinner and this is all a good sign, we will tell you why.

for a country like ours, all problems lie in income disparity that has only exacerbated despite of political promises to curb it. with those who earn handsome money and are willing and actually spending large sums on imported goods like electronics and garments, our trade balance has suffered. this ‘handsome money’ that they make can be attributed to the irrationality of their employers.

companies, both private and public, have not prudently considered changing market conditions and are thus unable to rein in rising operating expenses, especially those incurred on salaries.

take airtel for example. post jio’s entry in the telecom sector, not only the competitors had to reduce their prices for services they offer, they also had to cut on operational costs, resulting in laying off of large number of employees and rationalization of salaries of others.

take another case of private vs public sector banks. when one compares annual cost to company of a state bank of india (sbi) employee with that of his counterpart employed with a private sector bank, huge difference in favour of sbi employee comes as a shock. when market was opened for private and foreign banks in the country, the public sector banks didn’t notice the competition coming and failed to cut their operational costs. the irony is they gradually increased perks of their employees.

jio teaches a lesson to all market players. every sector is vulnerable to competitive forces and no enterprise can senselessly spend on pleasing their workforce. gone are the days when near-zero annual salary increments came as a shock only for a few handful companies. today, enterprises may even need to cut down salaries from past years so as to survive the competition. else, there will be no alternative to posting losses in books, defaulting on bank loans and finally going into liquidation.

to correct the market and more importantly correct the distortion in salaries, we need more and more market participants like jio. they would teach their respective sectors how to run businesses with thin margins by rationalizing costs.

sbi, other psb have only abused their hegemonic position

the 2 percent wage hike proposed by indian banks’ association to psb employees is unacceptable to them, and they have their own set of reasons. just one question- are present pay structures of psb employees commensurate with their skills and duties they perform? when one compares the monthly pay of an sbi staffer with that of a private sector staffer with identical skillsets, say with an accountant at a private enterprise, the picture that bank staffers are already drawing exceedingly high salaries becomes clear.

for decades, public sector banks misused and severely abused their dominant positions, which is owing to the general public viewing these banks as quasi-government, not just government-run banks. people feel safe when their savings lie with public sector banks and this compulsion of people to use the services of psb has been exploited to the core.

sbi, for example, not only pays lucrative and unreasonable salaries to probationary officers and other staffers, but also takes care of their utility bills, even petrol expenses and furniture for their home. how sensible or rational does this sound?

the above mentioned roles do not require any extraordinary skills and are only routine jobs, very similar to that of a worker at a mcdonald’s outlet. while a private sector employee would not be paid more than inr 25,000/ month for a similar job, bank employees are being paid much more than industry standards, besides being given perks and allowances.

a news report sympathetic to the demand of bank employees for a much better wage hike has quoted their ‘commendable work’ while executing government policy actions like demonetisation, jan dhan yojana and mudra yojna. why not initiate an enquiry and you would come up with unbelievable number of frauds and misappropriations and abuse of power by bank staffers while implementing these schemes.

even non-performing assets of psb is a product of unprofessionalism and lack of sense of duty in psb staffers. this aside, as per the latest data, nominal rural wage growth has plunged to its lowest level (real wage growth is in negative territory), what salary hike are psb staffers demanding?

why doesn’t one decode the lately declared sbi quarterly loss (q4, 2017-18), which shows that net loss from corporate segment was at inr 13,525 crore, while from retail banking segment the bank earned inr 3,586 crore net profit.

the only way to rein in these staffers is to immediately recruit special staff in all psbs so that banks can remain open to the general public even on sundays, all saturdays and public holidays, that too from 8 am to 8 pm with staffers working in two shifts of 6 hours each.

the newly recruited staffers will not only remind the existing ones of a fundamental market theory that only work is rewarded but will also make banking services more accessible and thus pushing the economy to new heights.

problem with government banks is that they are government banks

while everyone is counting the exact figure of non-performing assets, no one has taken time to see how messy, obsolete is the slip that is to be attached when depositing cash in a public sector bank. the modus operandi of government banks has led them to where they stand today; india’s so-called gem of banking sector, state bank of india, has posted a quarterly loss for the first time in 17 years.

cut to solution. divestment is the only option to revive indian public sector banks, and yes this can come with challenges hence the need is to think of an appropriate method of divestment.

when divestment is considered, we only think of making a public sector unit private by way of selling the stake of the government. this, however, can be a kneejerk decision. what is the alternative then? form a government trust and handover the stake currently held by government in public sector banks to this trust. yes, it sounds similar to how the tata group operates.

the government trust so created must have as its trustees experts from different spheres. what you call a ‘ppp’ mode of ownership in projects has to be replicated in this scenario. the majority of trustees must come from private sector and the trust in itself should not be considered as child or property of the government.

tasks given to the trust must include rationalization of salaries of personnel in public sector banks and a quick shift from the present modus operandi to functioning in a corporate, professional manner where customer is considered the king, profits are considered the prime target and the enterprise as a whole is run as a corporate venture, not a government enterprise.

the recent fraud unearthed in the pnb’s mumbai branch and central bank’s tough directives on recognizing and resolving bad assets are indicative of the severely bad health of government banks. and accept this, the sector is on the verge of falling into the category of ‘irreparable’.

the only problem is that the modus operandi of our public sector banks has worsened to the core and the banking staff, at every level, is motivated only by high salaries they draw, which in itself is a reason for failing banks.

form trusts and pass over the entire government stake in public sector banks to these trusts (individual trust for every psb) at the earliest to save the backbone of our economy.

sbi vs. mcdonalds-reasons why sbi is failing

here, we shall discuss how the operations and human resource framework at sbi and other public sector banks of india contrasts with that of mcdonalds, a prominent restaurant chain. in the end, we shall be able to comprehend why sbi is struggling to maintain its profitable operations despite being a bank of almost every indian.

let us start with the recruitment process at the two establishments. to be able to work with sbi, one needs to be a graduate and clear the competitive exam that the bank conducts to fill positions of clerks and probationary officers. for a mcdonalds job, one gets selected without any such exam, however, only those with good communication and other skills can expect to be hired.

do sbi and other public sector banks actually need a competitive exam to fill vacancies. the answer is ‘no’.

and this is backed by the rationale that a clerk or a probationary officer would not undertake any scientific explorations or innovations, the task allocated to them would only comprise of basic computational and computer skills. why then ask lakhs of aspirants prepare and sit for an exam that will only subsequently need you to perform simple accounting tasks?

still, this exam is undertaken by many, reason? the lucrative salaries that come along with job security, perks and repute.

while a mcdonalds employee, who has almost same skills as the bank clerk or probationary officer, is not paid more than inr 15,000 a month, a public sector bank employee takes home more than double this amount for performing more or less identical tasks.

so were you wondering why sbi and other psbs are reeling under npas, low productivity, dipping operating ratios, poor customer service? blame the high salaries of their staff and the employment security they enjoy, not the economic stagnation or loan defaulters.

on the other count, a mcdonalds outlet starts operations from early morning and functions at least till 10pm. reason? when there is demand, you need to supply (this is a fundamental economic theory). sbi functions from 10 to 5, is closed on 2 saturdays and all sundays of the month.

so if one needs to open a savings account or get a fixed deposit or apply for a loan, you can only approach the bank from monday till friday, strict 10am to 3.30pm, which is when almost every bank customer is out to earn bread and butter for her own.

the bottom line is if the government, the central bank and public sector banks want to improve on their operating ratios, they need to do away with sham competitive exams, rationalize salaries of their staff, re-think the working hours (hire more staff to work till at least 8pm and to keep at least some branches open on saturdays and sundays) and infuse work ethics in employees.

sbi’s merging with associates will only up the miseries

when do two forces combine? when one has something worthy to lend to the other party and when their working cohesively can bring economies of scale. in the merger of state bank of india with its associate banks, the concept of economies of scale has been grossly misconstrued. this merger is set to be one of the most ill-conceived ideas in the banking history of the country.

in this world where financial experts and consultants come from top business schools, basics of any concept are customarily overlooked.

the only intention of decision-makers seems to be their greed to let sbi enter the coveted list of banks in terms of assets. they may have achieved this goal, but if only value of assets determined viability of any enterprise, market forces would have compelled many competitors to join forces; this, however, isn’t prudent economics.

what is the role of a bank? what is banking? in simple terms, borrowing from those who have surplus and lending to those who are in deficit is banking, and this basic fact is ignored when the top management takes decisions like this one. sbi has its own set of savers and borrowers, so do the associate banks. all are reeling under bad assets and no one has a clear strategy to tackle this issue that has wiped out confidence from indian banking landscape.

if the government had to jump into the problem to find a solution, that in first place was created by imprudent banking decisions, it only reflects that the top management has failed.

and what will this merger lead to? while individual banks were working separately and with specialization in conducting their business, merger is set to make all banks work under same guidelines (thus upping the risk factor), and the point is that the largest entity, the sbi, itself is under stress.

there wasn’t any advantage, be it technological prowess or managerial capability, that could have resulted in synergy. this one entity may, on shallow ground, have elevated the stature of the chairperson of sbi, it will only prove to be a burden. with dysfunctional atms, poor customer handling, sub-standard technology, sbi has nothing that can make its associate banks more powerful after this merger, rationales have been completely disregarded.

this exercise could only make headlines, in terms of creating value, it is a total disaster.