Only five banks likely to pay dividends to govt, report says

The finance ministry has not budgeted for any dividend payouts from 9 state-
owned banks during the next fiscal with rising bad loans.

In an indication that the government has taken cognizance of public sector banks
(PSBs) under the stress of bad loans, the finance ministry has not budgeted for any
dividends from at least nine PSBs during the next fiscal, according to a report in a
leading daily.

A statement by the finance ministry revealed that only just five banks which
include Andhra Bank, Canara Bank, Punjab & Sind Bank, Union Bank and State
Bank of India are in line to pay dividends during the current financial year.

The report said that the dividend payout is expected to be much lower than what
the government had originally budgeted for.

The government in its revised estimates for the budget has reduced the dividend
payments from banks, financial institutions and insurance companies by almost
half to under Rs 5,100 crore, as against Rs 10,433 crore budgeted dividend
payment estimates for 2015-16.

Around Rs 2,215 crore, which is a third of the amount, is expected to come from
LIC. While State Bank of India's (SBI) dividend contribution is expected to be Rs
1,143 crore and Bank of Baroda Rs 501 crore.
 The nine banks will not be paying dividend to shareholders for the second
year in a row. In the current fiscal, 32 state-owned banks, financial institutions and
insurance companies are not going to pay dividends, said the report. Most of these
institutions apart from IIFCL and Bharatiya Mahila Bank were budgeted to pay out
hefty dividends during the current fiscal.

The Reserve Bank of India's decision to reclassify several loans to companies

where repayments have been irregular has resulted in many PSBs such as Bank of
Baroda, Bank of India, IDBI Bank, Indian Overseas Bank and Oriental Bank of
Commerce reporting losses. On the other hand, SBI and PNB have reported a sharp
drop in profits as they had set aside provisions for the non-payment of loans by
several companies.
MANY PSU BANKS MAY SKIP DIVIDEND PAYOUT THIS FISCAL

NEW DELHI: Hit by demonetisation and mounting bad loans, some public sector
banks (PSBs) may skip paying dividend which will have implications for
government receipts in the current fiscal.

Some PSU bankers have already indicated to the Finance Ministry that it may not
be possible for them to pay dividend as their profits are likely to remain subdued
due to lower credit offtake and rising NPAs, sources said without specifying the
names of the banks.

As a result, they said, it is expected that the revenue from dividend from public
sector banks is likely to be less than Rs 1,000 crore as many banks are going to
skip dividend payment this financial year.

Gross NPAs of PSBs rose to Rs 6,30,323 crore at the end of September 30, as
against Rs 5,50,346 crore by June, 2016.

According to analysts, normal banking operation was hit for almost two months
due to demonetisation leading to decline in income operation of banks. The credit
offtake hit a record low of 5.3 per cent following note-ban.

At this point of time, it seems difficult proposition that banks would be able to pay
dividend this year when all of them are seeking higher capital, sources said.

Last fiscal, as many as 16 PSBs, including PNB, BoB and Canara Bank, skipped
paying dividend in 2015-16, leading to three-fold decline in government receipts to
Rs 1,444.6 crore.

Only six state-owned banks including SBI declared dividend, though at a lower
rate, for the financial year ended March 2016.

Under the existing guidelines, profit making banks have to pay a minimum
dividend of 20 per cent of their equity or 20 per cent of their post tax profit,
whichever is higher.

The government, which is the majority shareholder in all the public sector banks,
witnessed 67 per cent decline in dividend receipt from PSU banks at Rs 1,444.6
crore as against Rs 4,336.22 crore in the previous fiscal.

According to the Finance Ministry data, the highest dividend was paid by SBI to
government at Rs 1,214.6 crore during 2015-16, 22 per cent lower than the
previous fiscal.

As regards Union Bank of India, the dividend payout was one-third of the previous
fiscal at Rs 85 crore. For Oriental Bank of Commerce, it was one-fifth compared to
the previous financial year at Rs 12.4 crore despite increase in government holding
due to capital infusion.

Those which skipped dividend payments included Allahabad Bank, Bank of

Baroda, Bank of India, Canara Bank, Central Bank of India, Corporation Bank,
Punjab National Bank, Dena Bank and Syndicate Bank.
Bank staff costs take bigger share of pot

The worlds big international banks are paying out much more on staff costs relative to profits
since the financial crisis while slashing the portion of income paid out in dividends, according to
data compiled by the Financial Times.
The findings come amid increasing shareholder complaints at annual meetings in the US and
Europe over the past two months that bank staff are being awarded a too high share of profits.
The FT data has measured trends at 13 big international banks, examining the proportion of an
overall pot comprising net profits and staff costs allocated three ways: to dividends, staff pay
and retained earnings.
Dividends comprised just 4.5 per cent of the allocation last year, down from nearly 15 per cent
in 2006, the last full year before the onset of the financial crisis. At the same time, staff costs
accounted for more than 81 per cent of the total, compared with a pre-crisis tally of 58 per cent.
Aggregate staff costs have risen by an average annual rate of 7 per cent to hit $259bn last year.
Over the same period, the banks share prices have slumped almost 60 per cent. Aggregate
dividends for 2011, at their lowest level since the FT data begins in 2000, amounted to $18bn,
compared with the 2007 peak of $61bn. All 13 banks paid a greater proportion of the pot to staff
costs last year than in 2006, with the proportion doubling at two of the groups hardest hit by the
crisis Bank of America and Royal Bank of Scotland. However, losses at both banks have
distorted the figures, while BofAs number is also inflated by its takeover of investment bank
Merrill Lynch. George Dallas, a director at UK fund manager F&C, said it was time for investor
dividends to stop being regarded as a residual consideration and to become integral to banks
thinking. Interactive Graphic: Sharing the spoils FT analysis of how the spoils to be divided
between shareholders and employees at each of the worlds 13 big international banks have
changed since 2000 The data also comes as policy makers weigh up regulatory changes to bank
pay.
The European Union is currently considering a plan to limit the level of bankers bonuses to a
maximum 100 per cent of salary, far below the sums commanded by many top executives. There
also are signs that banks are shifting their attitude to the issue of rebalancing distributions away
from staff and towards shareholders. I dont know what the right percentage is but the ratio
needs to change, one bank chairman said. Barclays last month pledged to revisit the way it
divides the spoils, following a shareholder rebellion at its annual meeting. According to the FTs
analysis, HSBC allocates the most generous share of dividends to shareholders 19 per cent of
the pot of profits plus staff costs while only Goldman Sachs has increased the percentage since
2006.

Cost to Sales Revenue Ratio

Cost-to-sales-revenue ratio often is referred to as the efficiency ratio, mostly used by banks to
measure how productive, or efficient, their banking operations are. The banking industry has a
relatively universal cost-revenue structure among peers, compared to other industries in which
different companies may have different cost drivers and revenue sources in their respective
operations. With the same kinds of costs and revenues, banks can apply the cost-to-revenue ratio
when comparing operating efficiency.

Cost-to-Revenue Ratio
The cost-to-revenue ratio measures operation efficiency by comparing operating costs as a
proportion of the total revenue. In other words, dividing costs by the amount of revenue, the
cost-to-revenue ratio shows the level of resources required to generate every dollar of revenue. In
a bank operation, costs include everything from employee salaries, buildings and supplies, to
technology uses and other necessary administrative expenses. To bring in higher revenue, banks
may have to commit more cost resources, which sometimes may not have an immediate effect on
the improvement of operation efficiency. In general, the cost-to-revenue ratio provides the
guidance on controlling and better using expenses.

Non-Interest Costs
The costs used in computing the cost-to-revenue ration are operating costs only, excluding any
interest expenses. Banks incur a large amount of interest expenses on deposits and other funds
obtained from capital markets. However, interests are the costs of using the funds and incurred
by all banks under comparable rates, given similar market conditions. Any difference among
bank operations can only be reflected in the amount of the efforts and resources that banks put in
to bring in funds from various sources and then generate revenue from fund uses in loans and
other investments.
Types of Revenues
Revenues for banks are either interest revenue on loans and investments or fee income from
other banking services. Different banking activities require different levels of cost resources to
achieve a same scale of operations. While earning interest revenue from loans and other
investments may have a low cost intensity, yielding non-interest fee income from certain special
banking services often requires high fixed asset concentration. Therefore, depending on a bank's
operating activity mix, the cost-to-revenue ratio may not accurately reflect operating efficiency at
the time and is subject to further interpretation.

Ratio Interpretation
As an efficiency measurement, the lower the cost-to-revenue ratio, the higher the operating
efficiency. However, a high number of cost-to-revenue ratio does not necessarily mean low
operating efficiency over time. For example, when a bank has a larger percentage of its operation
in fee-based and scale-driven business, the upfront cost inputs often are higher too, resulting in a
higher cost-to-revenue ratio and suggesting a lower operating efficiency at the time. But as the
fee income grows over time from increased business transactions, it lowers the cost-to-revenue
ratio and gradually improves the operating efficiency.
NPA effect: Private banks to offer meagre increments this year

If you are employed with a private bank, this financial year may not bring you cheer as far as
increments are concerned.

The reason? Blame it on rising NPAs or non-performing assets. Banks including the largest
private sector lender ICICI Bank, have increased their provisioning due to mounting NPAs
loans that do not yield returns and are termed bad. These loans have risen in the past but without
affecting increments.

But with the Reserve Bank of India (RBI) tightening provisioning norms, banks have allocated
more funds to clean up such bad loans. RBI guidelines on provisioning are eating into
profits, a senior executive at a large private sector bank told HT.

ICICI Bank registered a profit of just 4% in the October-December quarter of the current
financial year on account of higher provisioning for NPAs, which have increased 190% year-on-
year and 202% quarter-on-quarter.

Axis Bank registered over 15% increase in net profit. However, its NPA provisioning for the
quarter rose by over 40% year-on-year.
Industry insiders say that the average increments may be as low as 4-6%. The average salary hike
last year was between 9% and 15%. To deal with possible attrition that could be prompted by
low increments, banks may offer employee stock ownership plans (ESOPs) and promotions, they
added.
The annual appraisal process for most banks would begin soon.
Higher provisioning has hit public sector banks even harder. Delhi-based Punjab National Bank
posted a net profit of just Rs 51.01 crore against Rs 774.56 crore in the corresponding quarter a
year ago due to higher provisioning.

However, salaries of employees at public sector banks will not be affected as they were revised
under wage revision that took place last year. Under the revision, employees of 43 public sector
banks had received a 15% hike in salaries.

While NPAs put pressure on banks from one side, increased competition -- mainly from
payments and small finance banks may squeeze their business from the other. RBI issued
licenses for setting up 11 payments and 10 small finance banks last year.
16 of 22 public sector banks skip dividend in FY16 on mounting NPAs

The government witnessed 67% decline in dividend receipt from public sector banks at
Rs1,444.6 crore in 2015-16 as against Rs4,336.22 crore previous fiscal

According to finance ministry data, the highest dividend was paid by SBI to government at
Rs1,214.6 crore during 2015-16.
Saddled with mounting bad loans, as many as 16 public sector banks, including Punjab National
Bank, Bank of Baroda and Canara Bank, skipped paying dividend in 2015-16, leading to three-
fold decline in government receipts to Rs1,444.6 crore.
Only six state-owned banks including State Bank of India (SBI) declared dividend, though at a
lower rate, for the fiscal ended March 2016.

Under the existing guidelines, profit making banks have to pay a minimum dividend of 20% of
their equity or 20% of their post tax profit, whichever is higher.

The government, which is the majority shareholder in all the public sector banks, witnessed 67%
decline in dividend receipt from public sector banks at Rs1,444.6 crore as against Rs4,336.22
crore in the previous fiscal.

According to finance ministry data, the highest dividend was paid by SBI to government at
Rs1,214.6 crore during 2015-16, 22% lower than the previous fiscal. As regards Union Bank of
India, the dividend payout was one-third of the previous fiscal at Rs85 crore. For Oriental Bank
of Commerce, it was one-fifth compared to the previous financial year at Rs 2.4 crore despite
increase in government holding due to capital infusion.
Those which skipped dividend payments included Allahabad Bank, Bank of Baroda, Bank of
India, Canara Bank, Central Bank of India, Corporation Bank, Punjab National Bank, Dena Bank
and Syndicate Bank.

Balance sheet of most of the banks were under stress due to clean-up exercise. Due to heavy
provisioning for bad loans, many banks posted losses during the last quarter of the previous
fiscal.

Gross non-performing assets (NPAs) of the public sector banks had surged from 5.43% (Rs2.67
lakh crore) in 2014-15 to 9.32% (Rs4.76 lakh crore) in 2015-16 of the total advances. Banks
have been given time till March 2017 to clean up their balance sheet.

Cost-to-Income Ratios of Banks Worldwide

With many of the world's banks having reported results for the period ended Dec.
31, 2015, S&P Global Market Intelligence took a bird's-eye view of bank
efficiency around the world by looking at cost-to-income ratios for institutions
with at least US$10 billion in assets.

The ratio, which measures operating expense as a percentage of operating income,

is used to gauge efficiency and productivity for banks. Lower ratios generally
indicate higher efficiency, but a number of factors can affect the ratio, including a
bank's business model and size.

For example, as the Reserve Bank of Australia noted in its September 2014
Financial Stability Review, banks that focus on commercial banking and generate a
greater share of their income from interest income "tended to have lower [cost-to-
income] ratios than 'universal' banks, which earned a larger share of their income
through non-interest sources such as investment banking or wealth management."

Banks in Brazil were the least efficient in the analysis, with an average cost-to-
income ratio of 98.17%
 When looking at banks across countries and regions, it is important to highlight
that the economic, financial and regulatory environment of each country can affect
cost-to-income ratios. Banks around the world also report financial results for a
given period on different timelines, sometimes with fiscal year-ends that do not
correspond to the calendar year-end. S&P Global Market Intelligence used data
available for each bank for the most recent six-month period ending in 2015.
Therefore, while the results included in this analysis do not perfectly line up in
terms of time periods reported, they offer insight into the performance of banks in
the 2015 calendar year.
According to data available as of March 23, banks in Egypt, on average, were the
most efficient. Of the countries with at least three banks included in the S&P
Global Market Intelligence analysis, Egypt posted the lowest average cost-to-
income ratio at 27.70%. Of the four Egyptian banks included in the analysis, two
had ratios for the six months ended Dec. 31, while the other two had ratios for the
six months ended June 30, 2015.
Chinese banks had an average ratio of 32.73%. Banks in Qatar, Kuwait and the
United Arab Emirates posted average ratios of 33.12%, 36.86% and 37.04%,
respectively.
Cost-to-income ratios of banks in Asia Pacific
The Asia Pacific banking sector has seen a decline in the weighted average cost-to-
income ratio, based on analysis of cost- to-income ratios of banks with assets
above $10 billion in the Asia Pacific.
Cost-to-income ratio is a key financial measure for bank productivity and
efficiency. Generally, the lower the cost-to-income ratio, the more efficient the
bank is running, although the ratio is affected by the economic and financial
environment in which banks operate, and the different characteristics of banking
industries.

Overall, banks in the region have reduced their cost-to-income ratios in the past
few years, suggesting stronger control of operating costs (Figure 1). The weighted
average cost-to-income ratio of banks has fallen to 44.5% in FY2014 from 46.7%
in FY2012 and 46.3% in FY2013 (Figure 2). However, the low cost-to-income
ratio in some countries is not sustainable, and the decline in the ratio is not
expected to continue. Banks are challenged to maintain the profitability, and they
find it more difficult to make further cuts in operating costs.

Cost-to-income ratios vary widely among the Asia Pacific banking industries
(Table 1). Chinese banks continued to report the lowest cost-to-income ratio in
2014 at 33%, followed by Hong Kong, New Zealand, and Singapore banks, which
had cost-to-income ratios below 45%. Banks in Japan and South Korea had
relatively higher cost-to-income ratios, at 63% and 61%, respectively. In FY2014,
the average ratio went up in countries like Australia, Malaysia, South Korea, and
Thailand.
The average cost-to-income ratio of Australian banks improved to 45.9% in
FY2013 from 48.1% in FY2012. However, the ratio went up to 47.5% in FY2014,
as operating expenses climbed 11.4% on average, compared with 0.7% in the
previous year. The cost-to-income ratios of the Big Four are well below those for
smaller banks; and lower than those for banks in other developed countries, partly
because Australian banks employ their workers with relatively lower wages. In
addition, the low cost-to-income ratio can be partially attributed to the banks
greater focus on commercial banking operations.

Banks in China and Hong Kong have better control of operating costs, which
contributes to their relatively high profitability over the past few years (see Figure
3). Chinese banks managed to further lower their average cost-to-income ratio to
32.8% in FY2014, from 34.5% in FY2012 and 34.4% in FY2013. In part, the low
cost-to-income ratios can be explained by the high concentration of operating
income in lending business for Chinese banks, with the ratio of noninterest income
to total income at only around 22%. Hong Kong banks also narrowed the ratio to
40.4% in FY2014 from 42.7% in FY2012.

In South Korea, operating expenses of banks grew faster than operating income.
The average cost-to-income ratio increased from 45.9% in FY2011 to 53% in FY
2012, which was mainly driven by a 26% increase in operating expenses. In
FY2013, the ratio further increased to 59.9%, as the operating income dropped by
6%.

The growth of banks across the region has been slowing. Banks are struggling to
maintain momentum, mainly due to falling profit margins and weakening asset
quality amid fierce competition. Given the continued pressure on profitability,
banks need to improve the structure of their revenue. In addition, considerable
emphasis should be placed on further improving their cost efficiency levels. Some
banks have announced plans to cut costs. For example, Mike Smith, chief
executive of ANZ, has reaffirmed the target of cutting the cost-to-income ratio to
43% by 2016.

Employee compensation is the largest portion of operating cost for banks. The data
in Figure 4 shows that labour cost accounted for more than half of the total
operating costs in most countries. We also find that there was a slight downward
trend in the share of labour costs in banks total operating costs in some markets
such as Australia, Hong Kong, India, Japan, and Taiwan. Overall, however, banks
are still facing rising personnel expenses, which underscores the need for banks to
control personnel costs through some ways, such as outsourcing back-office
processing and expansion of digital banking. The slight decline in the share of
labour costs can be partially explained by the rise in compliance costs and bank
technology spending. Tighter regulatory compliance requirements for the banking
sector have been pushing up compliance costs. In addition, in order to drive topline
growth to sustain profitability, banks devote more resources to business
diversification, which can lead to higher costs in the short term. However, it will
assist in restructuring banks operating modes to strengthen efficiency in the future.

Banks can lower operating costs through the reduction of jobs and exit from
noncore businesses. However, in order to further cut operating costs, banks are
required to transform their business operations and make structural changes. Banks
are making greater efforts to simplify and standardise their operating models. IT
investment and maintenance cost for most banks are on the upward trend. Banks
will benefit significantly from investment in technology-related projects in the
future, although it adversely affects the current cost-to-income ratios of banks.
Taking Australia as an example, customers in Australia have been provided with
more streamlined banking services and back-office processes of banks have been
improved, due to the adoption of new technologies. Besides, their branches focus
more on sales and advisory services, as traditional transactional banking activities
can be done through digital banking channels.

Digital banking is becoming one of the key focus areas of the banking sector in
recent years. More customers are doing business with their banks through
lowercost digital channels. In addition, digitising banking operations helps banks
enhance efficiency and achieve lower cost-to-income ratios. In India, a digital
financial inclusion program encouraged by the government led to rising internet
penetration and increased mobile access. Indian banks have the potential to narrow
their cost-to-income ratios, driven by the various digitisation initiatives. Looking
ahead, new ways of improving on cost efficiencies are necessary for banks to keep
costs under control.

Determinants of Dividend Payout Ratios - A Study of the Indian Banking

Sector
Abstract

In the present day world, all the decisions of firms are linked to the concept of
wealth maximization of shareholders. Dividend policy is an integral part of a firm's
financing decision. The dividend payout ratio determines the amount of earnings
that can be retained in the firm as a source of financing. At the same time, retaining
a greater amount of current earnings in the firm means fewer rupees will be
available for current dividend payments. A major challenge for any firm is to
determine the optimal allocation of profits between dividend payments and
addition to the firm's retained earnings. The subject of corporate dividend has
caught the attention of researchers for a long time, resulting in intensive theoretical
modeling and empirical investigation. But several questions related to dividend
decisions remain perplexing because of diverse and conflicting theories and also
due to diverse empirical results. The purpose of this paper is to examine the factors
which affect the dividend payout ratio of Indian Banks. A sample of banks from
CNX BANKEX Index has been selected for the study. Statistical techniques of
correlation and regression have been used to explore the relationship between key
variables. The results of the study show positive and significant association
between Earning per share (EPS) and Dividend Payout Ratio (DP). Thus, EPS is an
important determinant of DP ratio with increase in EPS, the firm's ability to pay
dividend also increases. Stock beta has been found to have a negative but
significant relationship with Dividend Payout Ratio in the banking sector. The
results disclose insignificant relationship with cash flow from operations, debt
equity ratio and tax to profit before tax ratio. However, the target payout ratio of
the industry has declined to 44 percent in 2005-2006 from 71 percent in 1996-97.
Dividend payout ratio has always been a topic widely researched in the area of
Financial Management. This study would enable banks to identify the factors on
which their dividend policy will depend. This is the first paper to study the
determinants of dividend payout ratios of Indian Banking Sector using the
BANKEX Index.
CEO salaries in public sector banks
April 8, 2014, 6:56 PM IST Mayur Shetty in Small Change | Lifestyle | TOI

Indias largest lender State Bank of India on Monday advertised that it is hiring
over 1800 probationary officers. The high point of this recruitment drive was the
package of around Rs 8.4 lakh or Rs 70,000 a month the bank was offering
executives posted in a big city like Mumbai. While the package includes rental of
up to Rs 29,500 per month, it is almost twice what is offered in some private banks
for executives at the bottom of the ladder. Bankers say that in every competitive
examination a large number of candidates are those who are already employed in
private banks.
Now compare this at the CEO level where the equation gets inverted. The CEO
who had been most vocal in highlighting the discrepancy was former State Bank of
India chairman OP Bhatt. Bhatt under whose tenure SBI reported record profits
pointed out that the salary of a psu bank chairman was only a fraction of what was
being offered in much smaller private sector banks. At that time Bhatts own
annual package was around Rs 26.5 lakh while Aditya Puri, chief of HDFC Bank
took home a package of around Rs 3.4 crore. Since then the difference has only
grown. Last year Aditya Puri was the highest paid with an annual package of over
Rs 5 crore.
To most observers it would appear that the government is unnecessarily penny
pinching when it comes to CEO pay. Their reasoning is that salary hikes are being
blocked by the bureaucracy who does not want psu employees to get more than
babus of an equivalent rank in the government. Former RBI governor D Subbarao
too supported psu chiefs on this issue pointing out that if psu banks had to compete
with private sector lenders there should be a level playing field in salaries.
So why is there such an inverse wage structure in public sector banks? It is no
ones case the executives recruited by the public sector banks are not deserving.
SBI has for long been known to pick up the brightest and the best among Indias
youth and continues to be an employer of choice particularly for candidates from
outside metros. Historically, this has worked well for the bank as the new recruits
slipped into leadership roles as branch managers.
What has changed the game is technology. Private banks are getting more out of
their branches by putting more and more items under the self-service option. As a
result a large number of executives are engaged in selling rather than in actual
operations and these banks therefore do not find the need to hire the best and
brightest through competitive examinations. Low-end jobs jobs are outsourced. It
is such cost cutting at the lower-end leaves enough head room in the wage to
income ratio for the bank to pay more to senior executives.
If the top management at PSU banks aspire to get the same remuneration as their
counterparts in the private sector, their banks will have to increase their
productivity manifold. While this is certainly a challenge, it is not implausible.
Bankers are betting on transactions moving to the mobile platform where the cost
of transactions is expected to be a small fraction of other alternate channels.

It Pays to Be a Fresher at This Government Bank But Not a CEO

Written by Varun Sinha | Last Updated: April 15, 2015 09:40 (IST)

The widely held notion is true for most state-run jobs until one stumbles across
State Bank of India's latest job advertisement. The country's biggest lender is
accepting applications for over 2,000 posts of probationary officers, an entry-level
post, at an eye-popping salary (cost to company) of Rs. 8.55 lakh.
Government jobs, generally associated with employment security, are often less
rewarding in terms of monetary benefits as compared to private sector jobs.
The widely held notion is true for most state-run jobs until one stumbles across
State Bank of India's latest job advertisement. The country's biggest lender is
accepting applications for over 2,000 posts of probationary officers, an entry-level
job, at an eye-popping salary (cost to company) of Rs. 8.55 lakh per year.
Compare that to ICICI Bank, India's biggest private sector lender, which will pay
its probationary officers a CTC of just Rs. 4 lakh this year.
SBI's generous entry-level compensation makes the lender a big draw among
Indian graduates; its previous attempt to fill 1,500 vacancies in 2013 attracted more
than 17 lakh applications.
While SBI is a better paymaster when it comes to freshers, employees up the value
chain get a pittance as compared to their private sector counterparts. ICICI Bank's
CEO and MD Chanda Kochhar received a total compensation of Rs. 5.23 crore in
2013-14, more than 40 times what SBI's Chairman and MD Arundhati
Bhattacharya made that year.
Ms Bhattacharya became SBI's chairman and MD in October 2013, so full year
compensation details are not comparable. But, her predecessor Pratip Chaudhuri
earned Rs. 23 lakh (excluding lease rental and other benefits) as SBI's chairman
and MD the previous fiscal year, which is just 5 per cent of what his counterpart at
ICICI Bank made a year later.
None of India's nearly two dozen state-run lenders come close to private lenders in
terms of CEO compensation. According to a Reserve Bank report, the average
CEO monetary compensation for new private sector banks in 2012-13 was Rs. 3.21
crore as compared to public sector banks' average CEO compensation of Rs. 18.66
lakh. Private sector CEOs also get stock options, whose monetary value is
dependent on the bank's stock price.
"It is unsustainable for such differentials to continue without a major adverse
impact on the recruitment and retention of talented managers in public sector
banks," said former Axis Bank CEO PJ Nayak, who headed an RBI committee to
review governance of boards of banks in India.
Low salaries, especially for top management, has also been linked to weak
performance of state-run lenders that dominate India's banking sector with more
than 70 per cent share of loan assets, but account for only a third of profits. Bad
loan ratios are on average more than double those at private sector counterparts.
PSU lenders will be able to pay attractive salaries to their CEOs if the government
accepts Mr Nayak's recommendations calling for higher compensation for PSU
bank chiefs.
Cost-to-income ratio of PSBs at a decade high

Flat to negative growth in net interest incomes the difference between interest
earned and interest expended combined with rising operating expenses has
meant that the cost-to-income ratio of public sector banks has hit its highest in over
a decade.

By: Shakti Shankar Patra | Mumbai | Updated: February 17, 2016 1:45 PM
Fiscal consolidation In other words, PSBs are now spending more money to earn
every single rupee than they ever did in the last decade
Flat to negative growth in net interest incomes the difference between interest
earned and interest expended combined with rising operating expenses has
meant that the cost-to-income ratio of public sector banks has hit its highest in over
a decade.

In other words, PSBs are now spending more money to earn every single rupee
than they ever did in the last decade.

This, at a time when the same for private sector banks has hit its lowest in over five
years, thereby highlighting the point that the woes of PSBs wont necessarily end
with RBIs asset quality review (AQR).

Data compiled by FE reveals that while the cost-to-income ratio of all listed PSBs
has risen to 52.96% in Q3FY16 the highest since Q2FY06 the same for all
private sector banks for which five-year data is available has fallen to a new low of
just 40.81%.
When it comes to individual banks, while Dena Bank is the most inefficient PSB
with the highest cost-to-income ratio in Q3FY16 of 74.99%, ICICI Bank is the
most efficient private sector bank with a cost-to-income ratio of 32.16%.

Just how big the difference between the two is can be validated by the fact that
while employee expenses accounted for 13.2% of Dena Banks total income in
Q3FY16, the same was just 6.5% for ICICI Bank.

Interestingly, theres not a single PSB which had a lower cost-to-income ratio than
the same for all private sector banks put together, the closest one being Andhra
Bank, which had a cost-to-income ratio of 40.82% in Q3FY16.

Simply put, if cost-to-income is considered as the efficiency barometer, then in

Q3FY16, not a single PSB was more efficient than the average private sector bank.

ICICI chief gets paid 20 times more than SBI head: Why govt must reform
wages in public banks
Dinesh Unnikrishnan Jan, 30 2015 12:18:38 IST
Trade unions of bank employees, mainly those from state-run banks, will sit again
with the Indian Banks Association (IBA), the industry lobby of banks, in February
to continue with their negotiations on a wage rise.

Unions, which had deferred a four-day strike in January after IBA improved their
offer from 11 percent to 12.5 percent, has yet again threatened to strike work in
February if their demands, which include a 19.5 percent rise in wages, arent met.

At present, wages of staff in public banks are determined once in five years
through bilateral negotiations with unions.
Bank managements and trade unions have their own point of arguments. While
IBA says the total burden on banks to effect a 12.5 percent wage revision
(including other arrears) would be close to Rs 8,000 crore, unions cite the rising
work burden of bank staff, and their relatively poor compensation and say they
deserve better.

In a larger context, for an aspiring government with reforms as its primary focus,
an immediate relook at the reform process of state-run banks and offering them
autonomy to operate, is highly critical. And, when it comes to reforms in sarkari
banks, scrapping the archaic methods and processes of wage determination of staff
assumes significance.
It is difficult to have a permanent solution on the wage issue and the frequent strike
calls unless the government steps in to kick-start the reform process in the wage
structure and compensation policies of state-run bank employees.

Government banks still control over 70 percent of the banking industry and no
economy can become a major power without strengthening its backbone an
efficient banking system. In India, operational parameters of state-run banks have
lagged way behind private and foreign banks.

The lower wages of staff have arguably contributed this inefficiency.

For one, it has dented the confidence of state-run bankers in a competitive market.
On an average, employees in private and foreign banks earn four-five times more
than their peers in government banks. Competing with your rival, who earns a
fortune compared with your salary package, kills the motivation of the sarkari
banker.

Second, it causes the erosion of talent from state-run banks to private and foreign
rivals. This is more evident among the young officers handling specialist
operations. There has been an exodus at the junior level mainly on account of the
much attractive packages offered by private banks.
Earlier, a government bank job offered security almost unequivocally and that
outweighed the concerns of poor compensation. But it doesnt work much now,
especially since the compensation gap with private sector has widened in the recent
years.

Recently, an RBI panel, which looked at the performance of state-run banks had
warned about an erosion of specialist skills due to significant and widening
compensation differences with private sector banks. Noting this as constraining
the ability of government-controlled lenders to compete for market share and
profits, the panel said it could contribute to a sharp fall in the market share of state-
run banks to 10 percent by 2025 from 73 percent in 2013.

To understand the vast differences in the compensation structure, one just needs to
take a look at the comparison of the compensation figures of chief executive
officers in some of the private and public banks.

The chief of State Bank of India (SBI) earned an annual compensation of Rs 23.01
lakh in 2012-13, while the head of ICICI Bank, SBIs nearest competitor, took
home Rs 5.2 crore in 2013-14. SBI chairmans annual compensation figure for
fiscal year 2014 isnt available yet. Remember, total assets of SBI, as at end
September, stood at Rs 18.74 lakh crore , whereas that of ICICI bank was at Rs
6.11 lakh crore.

Similarly, the compensation for the chief of HDFC Bank in 2013-14 stood at Rs 6
crore, while that of the chairman of Bank of Baroda was just over Rs 25 lakh.

Interestingly, even the chief of microlender, SKS Microfinance, took home Rs 1.6
crore in 2013-14 as his annual pay nearly eight times the chairman of Bank of
India earned. Chiefs of state-run banks also earn other perks car, residence,
driver and a servant, for which the bank will pay, but still the difference is huge.
This being the case with an official who runs a large bank with assets running in
trillions, it is needless to say about the lower cadre employees. For most of state-
run bankers, a high-paying job comes only after retirement when they take up a
consulting role or similar kind in some private companies.

The reason for such a big difference in the compensation structure of sarkari banks
and their rivals in private sector is simple. Salaries in public sector banks are
decided through mutual discussions between the Indian Banks' Association, the
industry body of banks, and the bank unions once every five years. Often, there is
no agreement between trade unions and IBA on this, resulting in endless calls for
strikes by bank employee unions that frequently disrupting the operations of banks.

In contrast, salaries of top executives at private sector banks are decided by

individual bank boards and shareholders with the approval of the Reserve Bank of
India.

Compensation packages to bank officials should not be offered on a uniform basis

but should be offered in relation to the size of the bank and performance, which
isn't the case presently. And till this anomaly is rectified, the system will produce
more tainted officers like SK Jain of Syndicate Bank, who was arrested on charges
of bribery.

Logically it doesn't make any sense to offer identical packages to employees across
banks with different business sizes - say a big bank like SBI and small bank like
Dena Bank. Also, the performance indicators of individual employees should be
taken into account.

Perhaps, the time is right for the government to acknowledge this problem and
work towards resolving it taking cues from the private sector, given the rapid
changes witnessed in the banking industry with the arrival of new set of banks.
Individual banks should be given the autonomy to offer deserving compensation to
employees who perform well. Similarly, no free lunches should be offered to non-
performers.