Fin Min PC Says Entire Bank Income Cannot Be Used For Wage Hike

Entire bank earnings can’t be used to provide wage increments: Chidambaram--LiveMint 

( Performance of banks is given below)

Chidambaram stressed that state-run banks must be

 adequately capitalized and be compliant with 

Basel-3 norms

Remya Nair

New Delhi: Finance minister P. Chidambaram on Monday asked state-run banks to plough back retained profits as capital and warned that entire bank earnings cannot be used to provide wage increments to employees.

“The government is infusing funds into the public sector banks. But that is not enough. Banks have to use their retained profits and plough it back as capital,” Chidambaram said while speaking at the foundation day of Indian Overseas Bank. “Banks also have to give dividend to shareholders. I appeal to the employees to recognize that entire profits of banks cannot be used to provide enhanced wages to employees.”

Bank employees are on a two-day strike beginning on Monday demanding higher wages. The Indian Banks’ Association is in the process of holding wage negotiation talks with unions and employees to arrive at a settlement. The unions are demanding a 20% increase in wages, against the 10% offered by bank managements. ​

Chidambaram stressed that state-run banks must be adequately capitalized and be compliant with Basel-3 norms.

The government infused Rs.12,000 crore, Rs.12,517 crore and Rs.14,000 crore in 2011-12, 2012-13 and 2013-14, respectively. At the same time, state-run banks ploughed back Rs.35,000 crore and Rs.37,936 crore in 2011-12 and 2012-13, respectively as capital from retained profits.

Chidambaram said he hoped public sector banks will be able to plough back a higher amount as capital for the current financial year.

But banks may find it difficult to plough back retained earnings higher than last year’s level due to increased provisioning.

M. Narendra, chairman and managing director of Indian Overseas Bank, said that increase in provisioning due to bad loans will make it difficult for banks to have higher retained earnings. “We will have to start earning more along with having a good dividend policy,” he said.

http://www.livemint.com/Industry/R7QhqJ6V4Mt15Qmo2P8wDJ/Entire-bank-earnings-cant-be-used-to-provide-wage-increment.html

Now Chidambaram Defends Lower Wages to Bankers
--By Sri Rajesh Goyal
(source a;llbankingsolutions.com)

I have just come across news items appearing on internet under the heading “Chidambaram to bank staff: All profit can't be used to pay higher wages”.  The report broadly says :

 

(a)             “A significant part of retained earnings must be used to infuse additional capital, otherwise banks will not find the amount of capital that is required over the next 5, 10, 20 years”    He also  told that the capital is to take care of a number of things. Firstly, banks are obliged to declare a dividend, both to the majority owner of the bank and the other shareholders,"   "It cannot be that all profits are used to declare dividend and to provide enhanced wages and allowances to bank employees."

(b)            “Claims of officers, staff and employees must be duly acknowledged, and a fair and just (wage) settlement is arrived”  but  there are other claimants to banks' profit.

 

The above report is significant as this has been issued by FM on a day when most of the bankers are on 1^st day of the  strike (out of the 2 day strike).   It clearly indicates :-

 

(i)                           FM is full aware of the strike and is concerned about the same

(ii)                        He is fully aware of the fact that bankers are being paid lower wages than their counterparts elsewhere;

(iii)                      He wants a fair and just wage settlement;

(iv)                      However, he is of the opinion that claims of other stake holders like Government, public and capital infusion (through retention of higher profits) have higher claim than the employees.

 

Thus, he openly advocates that even fair and just wage revision can wait to pay more to Government, Public and retention of profits to be used for future.

 

I would like to remind Finance Minister  (He may NO  more be an FM after next 100 days, as is being claimed by other Prime Ministerial candidate, Mr Narinder Modi) a few basic facts :-

 

(A)    Are banks a personal fiefdom of FM or Finance Ministry?  Nowhere in the world I have heard wherein the shareholders dictate the company as to how much dividend be paid to the shareholders.   However, in India, Finance Ministry dictates such things.   Readers can click  on the link given within brackets here to read the report wherein Finance Ministry has dictated such terms to Public Sector Banks.    [Finance Ministry Wants 20% Dividend From Banks].   Is it fair to ask a company to declare a minimum dividend  or rather it should be decided by the Board of Directors depending on the surplus profits available after meeting the genuine needs of its expenditure.    Such dictates by FM only pressuries the CMDs,Auditors to ignore the fundamentals of accounting and ensure that the desired dividend is declared by banks.  I am sure if such a thing is challenged in a Court of law, Finance Ministry may find it extremely difficult to defend. 

(B)    By asking a declaration of minimum level of dividend, is Finance Ministry not encroaching upon the fundamental right of the banks to keep a portion for future expansions.   There are hundreds of examples in the corporate sector, when companies do not declare any dividend to conserve more funds for future expansions.   However, in case of banks, FM wants that funds for further capital must be kept aside by NOT increasing the salaries of the employees.   Does this means the Government must be paid the dividend even if bank employees wages are on the verge of starvation?  Why only bankers are required to work for 6 days a week and forced to work without overtime?

(C)    All bankers are well aware about various types of pressures exerted on banker by big borrowers for sanction of loans / enhancement of limits, Restructuring of Loans, OTS  of Loans by corporate borrowers, and loan waiver schemes.   I think before FM has any right to ask bank employees to sacrifice their increase in wages, he should ensure that no one from any Government ever dares to exert pressure on bankers for such activities which in reality drain lot of funds of banks.

(D)    Why not  FM statement clearly indicates that he wants the Banks to be purely commercial in nature i.e. wages will be paid only after meeting the demands of other stake holders i.e. shareholders, future requirements etc?

         In case he wishes that banks should be pure commercial organizations, then  why non profitable works like handling of Government business, Pension payments, Financial Inclusion, Compulsory opening of branches in rural areas are imposed on public sector banks.  

         For such non profitable activities, either banks should be compensated or banks be made free to handle such business.  I am sure thousands of crores of additional profit will be generated as the staff working on such activities will be able to devote more time for acts like recovery of NPA etc.

(E) FM is fully aware of huge number of scams that have been surfaced in last few years.   I am sure,  the funds misappropriated in a single scam of 2G (Rs1,76,000,00,00,000) or coal allocation would have been sufficient for 100 years of wage revision of bankers.  However, politicians can not be questioned as they say you should come to Parliament by fighting elections.

(F) FM / PM  talk on the basis of his education in Harvard and not like a common Tea Vendor.   He does not know the constraints of a Aam Banker for his day to day survival.  He can always say like Rahul Gandhi that "poverty" is only a state of mind.   He feels that if Bankers will start thinking that they are well paid, then they will become rich.  

 

There can be many more arguments to expose the fallacies of the FM’s statement.  Our readers will certainly add such arguments in the comments column.

 

Thus, now IBA is likely to take more hardened stand, and UFBU leaders have to be ready with better background paper work to counter the fallacies of FM and IBA arguments.  

 

In case bankers are not given an honourable rise in wages, I am sure slowly lesser and lesser intelligent workers will join banks.   This will lead to more NPA, higher frauds and poor service to customers.   Thus, in short run, IBA and FM may be happy but in the long run they will rue their decision.   A good example of this attitude is stoppage of recruitment from 1986 to 2004 or so.   At that HRD people used to boost of saving few hundred crores, but now the whole banking industry is in turmoil as there are no mid age bankers.   Mass recruitments are resulting in recruitment of lower standard of the recruitees and banks have no facilities and time  to train  them.   All this is leading to slippage of more and more loans.

 

FM and Bank management needs to be visionary rather than short sighted.   Or else banking industry will remain in turmoil and we will keep on fire fighting only rather than go for solid foundations on which to rest our financial sector.  I can guarantee if now bankers are not paid well, the next five years will see mass exodus of good people as new banks are coming up.  The left over people will be disgruntled  and new recruits to be poor qualified, resulting in lower standards and all around fall in the rating of banks.

 

I can only hope better senses will prevail upon FM and people sitting in government and they will ensure honourable wage settlement at the earliest or bankers may have to go on long warpath.

Rammohan Vaidyanathan add here and says that  Disbursal of 

Educational Loans is causing erosion in bank's profit to a great extent.

. Though the student is below average in marks we are compelled 

to sanction loans. The loans are not for the betterment of the students but it is for 

the betterment of the institutions. We can straight away taken them to NPA

 category. Even if the loan is denied, they are getting the sanctions through 

politicians or court.

Income And cost Analysis of Banks submitted by Sri Pannavalam

Performance of Public Sector Banks in F.Y.2012-13
(Rupees in Crores)
Category of Banks	Total Income	Staff Cost	Staff Cost as % of Total Income	Operating Expenses	Operating Expenses excl. Staff Cost	Staff Cost as % of Operating Expenses (excl. staff cost)	Provisions & Contingencies	Provisions as % of Total Income	Net Profit	Provisions as % of Staff Cost
SBI Group	183512	23268	12.68	37094	60362	38.55	22101	12.04	17783	94.98
Nationalised Banks	428146	40862	9.54	64718	105580	38.70	49233	11.50	32799	120.49
Total	611658	64130	10.48	101812	165942	38.65	71334	11.66	50582	111.23
Note:
1. Total number of staff working in SBI & Associate Banks as on 31-03-2013 was 293,965.  So, per capita Staff Cost in these banks for FY 2012-13 was Rs.7.92 lakhs.
2. Total number of staff working in Nationalised Banks as on 31-03-2013 was 507,694.  So, per capita Staff Cost in these banks for FY 2012-13 was Rs.8.05 lakhs.
3. Quite surprisingly, the average staff cost in SBI group is less than the average staff cost in nationalised banks.
4. Staff Cost as compared to Total Income is only 10.48% in all Public Sector Banks.
5. Staff Cost to Total Income Ratio in SBI Group is 12.68% and it is 32.91%  higher than the same ratio of Nationalised Banks (9.54%).
6. Provisions & Contingencies are higher than the Staff Cost in all Public Sector Banks.
7. Provisions & Contingencies constitute 11.66% of the Total Income in Public Sector Banks.
8. Ratio of Provisions & Contingencies in SBI Group to Total Income is higher in SBI, than in Nationalised Banks.
9. Provisions have a direct bearing on Net Profit and also the leverage for giving higher compensation to the bank staff.
10. Except the provisions made for terminal benefits (and wage arrears, if any), bank staff are in no way responsible for keeping higher provisions.
11. Net Profit of Public Sector Banks alone for the year 2012-13 is Rs.50,582 Crores, after all provision, but before payment of Dividends for 2012-13.
12. Even if additional 2% of Total Income is spared for hike in Staff Benefits of Public Sector Banks, it will amount to Rs.12,233.16 Crores.
13.Besides, the bank staff in public sector banks have already foregone salaries to the tune of Rs.510 Crores, for 5 days of strike (20-02-2013, 21-02-2013, 18-12-2013, 10-02-2014 & 11-02-2014).
14.Interest Paid on Deposits (Rs.356,497 crores) constitutes 63.42% of the Total Income.
15.Interest Paid on Borrowings from RBI and Inter-Bank Borrowings amounting to Rs.12,500 Crores constitutes 2.04% of Total Income.
16.Interest Expended - Others (details not furnished) amounting to Rs.18,932 Crores constitutes 3.10% of Total Income.
17.No figures with regard to Interest paid on Bulk Deposits on preferential rate of interest are available.
18.Similarly, no break up particulars are available in respect of provisions made for bad (irrecoverable) debts and Restructured Advances (CDR and Others).
Date: 10-02-2014									V Subramanian