FM Says NO To Wage Hike , Increment to Bank Staff

Govt links increments to staff performance of public sector banks, unions hold  the key

MUMBAI: The finance ministry has unshackled public sector banks from decades-old
practice of uniform wage increases for nearly 10 lakh staff and permitted 26
lenders to provide salary raises based on performance, two bank chairmen said.
But it is the trade unions that will decide whether the move succeeds.

Rajiv Takru,  secretary (financial services), told bank chiefs at a meeting on Wednesday that
they are free to provide increases provided they have been performing well. But  weak banks have been ordered to limit increments to about 10% as the pile of bad  loans may not justify asteeper increase, said bank chairmen who attended the  meet but did not want to be identified.

State-owned banks are facing  their worst period in more than a decade as mounting bad loans cripple earnings.  With little signs of improvement in economic growth, banks' non-performing
assets may climb, making it tough for them to provide reasonable wage  increases.

PSU banks, which control nearly two-thirds of the Indian banking system, raise staff salaries
every five years. "We are asking for a fair and just wage revision keeping in  view inflationary pressures and accountability of employees," said Ravi Shetty, convener of the United Forum of
Bank Unions (UFBU), the group that negotiates with the Indian Banks' Association
for wage increases.

Although UFBU has not arrived at the increase it is  seeking, it has not accepted the 10% offered by IBA, which started  the negotiation at 5%. For 2003-07, when inflation was much more benign, the increase was 17.5% for  all cadres of workers. The latest negotiation is for 2012-17, which could also  cover some old private lenders such as Dhanlaxmi Bank

"It will be a big burden for banks that  are struggling to improve earnings," said one of the bank chairmen cited above.  "The rising stress in the economy, due to policy paralysis coupled with the
slowdown, is taking a toll on banks' bottom line which will make it difficult for them to make an attractive offer this  time."

Bank staff are also aware of the deteriorating state of their  institutions where bad loans are rising by the day in contrast to private peers,  who are performing better and earning more.

State-run lenders are the  worsthit because of their exposure to infrastructure projects which are stuck  because of government indecision.

"PSBs reported single-digit return on equity for the second consecutive quarter
in the current fiscal," said a report from ICRABSE 0.07 %, a unit of ratings agency Moody's Investor  Services.

"The possibility of improvement in PSBs' profitability in the  short term appears limited, given their limited ability to increase lending  rates, the tight monetary stance prevailing, asset quality pressures, higher  levels of inflation, and the impending wage revision."

Gross NPAs of could be at 4.8-5% of total assets by March 31, 2014, forecasts ICRA. Their net
NPAs could be around 2.8%. This compares with 1.9% gross NPA of private banks as
of December 31.

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