Majority of India’s bank employees no longer in public sector banks
Given the fact that public sector banks (PSBs) are among the last remaining bastions of trade unions in India, and the government has not been able to push big-ticket privatisation of PSBs, this development is yet another example of the market-driven, changing landscape of the banking industry.
2021-22 was a milestone year in Indian banking industry. The share of bank employees in public sector banks fell below the 50% mark for the first time in history. Given the fact that public sector banks (PSBs) are among the last remaining bastions of trade unions in India, and the government has not been able to push big-ticket privatisation of PSBs, this development is yet another example of the market-driven, changing landscape of the banking industry. To be sure, the restructuring of PSBs by the government is expected to have played a role in the reduction of workforce. Here are five charts that explain the significance of this development in detail.
Share of PSB bank employees fell below the 50% mark for the first time in 2021-22
On December 27, 2022, RBI put out its annual publication, Statistical Tables relating to Banks in India for 2021-22. Among other things, these tables contain information on bank-wise and category-wise employees of Scheduled Commercial Banks (SCBs) in the country. The table shows that the share of PSB employees across all categories (officers, clerks and sub-staff) stood at 49.13% in 2021-22. This is the first time PSB employees will not have a 50% share in total SCB employees in India. Even if one were to add the number of employees of India Post Payment Bank – it is owned by the department of post of the government of India – this number does not go beyond 50%. To be sure, the earliest period for which this data is available is 2004-05, when the share of PSB employees in total SCB workforce was more than 87%.
See Chart 1: Change in share of PSB employees in total SCB workforce
Fall in number of PSB bank employees has come at a time when banking sector workforce is growing
In absolute terms, the total number of PSB bank employees stood at 770,000 in 2021-22. This number was the highest at 857,000 in 2016-17 after which it has fallen every year. To be sure, the total number of employees in SCBs has increased from 1.3 million to 1.57 million during this period. As is to be expected, bulk of the increase has come from private sector banks, whose bench strength has increased from 400,000 to 650,000 during this period. The rest are in foreign banks operating in India, payment banks, and small finance banks. Almost all of these are in the private sector
See Chart 2: Contribution to growth in number of SCB employees in India
Even a fall in staff strength has not arrested the rising wage-bill to income ratio for PSBs
This is the biggest irony facing India’s government owned banks. Even though they have reduced the number of employees, their wage bill to income ratio is still higher than that of private banks and continues to increase. To be sure, this ratio has been increasing even for private sector banks, but RBI data shows that the gap between wage bill to income ratio of the PSBs and private sector banks has largely risen in the past few years. There are two reasons why this statistic will haunt government banks even more. Private banks have a much bigger share of staff in the officer cadre than PSBs and they are known to pay significantly higher salaries than government banks at the leadership level. Various experts including former RBI governor Raghuram Rajan have pointed to the inability of government banks to pay higher salaries as an important handicap in attracting talent.
See Chart 3: Wage-bill to income ratio of PSBs and private banks
See Chart 4: Cadre wise staff share of various bank groups in 2021-22
The shrinking footprint of PSBs among bank employees is in keeping with their shrinking business
While the government continues to hold back on big-ticket bank privatisation in India, at least in terms of ownership, the banking business has increasingly moved from government owned banks to the private sector. Numbers speak for themselves. The share of PSBs in total outstanding bank credit of SCBs was 87% in 1989-90. It has fallen to just 54% at the end of 2021-22. The respective numbers for share in total deposits are 88% and 60%.
See Chart 5: Share of PSBs in total credit and deposits
Time for a strategic reboot of India’s public banking?
Given the growing privatisation of banking business in India, the question arises whether PSBs should be allowed to just wither away gradually. If things are left as they are, this seems to be fait accompli. This question was best answered by YV Reddy, former RBI governor and one of India’s most respected voices on the financial sector. In a 2019 interview to BQ Prime, Reddy called for a strategic presence of government banking in India. “What does strategic presence mean? You decide that so much percentage [of banking] should be in public sector. Determine through competition which public sector banks should be supported. Public sector banks which are doing well, you support. Those public sector banks which are not doing well, sell away the shares. Then there will be competition among them,” Reddy said.