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In this article we will discuss about the Voluntary Retirement Scheme (VRS) in public sector banks.
Voluntary retirement scheme (VRS) was implemented by 26 out of 27 public sector banks in 2000-01. According to Indian Banks’ Association (IBA), the total staff strength in public sector banks at the end of March 2000 was 8,63,188 out of whom 1,26,714 applied for VRS which constituted around 4.7 per cent of its total number of employees.
About 80 per cent of the number of applications were accepted, and staff relieved under VRS until December 31, 2001 were to the extent of 1,01,300. This constituted around 11.7 per cent of the total staff strength at the end of March 2000.
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In this connection, banks were advised by the Reserve Bank to treat the ex-gratia payment as deferred revenue expenditure (DRE), which would not be reduced from Tier I Capital. The position will be regularized by the end of the accounting year in which the DRE gets totally wiped out.
The maximum period of deferment has been fixed at five years, including the year of acceptance of VRS applications by the banks. Thus, public sector banks are expected to save about Rs 2,025 crore annually, after the over whelming success of the voluntary retirement scheme, which has reduced the staff strength by nearly 12 per cent.
As per the estimate prepared by the Finance Ministry, the total VRS cost amounted to Rs 12,453 crore till September 2001, after 1,01,922 employees opted for VRS, but the banks would be able to save a whooping Rs 2,025 crore in staff costs annually.
State Bank of India stands to gain most, as it would save Rs 500 crore annually after accepting VRS applications from 20,784 employees. SBI and its seven associates shed about 28,000 employees through the VRS scheme, which would result in total savings of Rs 650 crore.
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Other PSU banks, such as Canara Bank is expected to save Rs 190 crore. Bank of Baroda stands to gain Rs 157 crore annually, UCO Bank and Syndicate Bank Rs 100 crore each. Punjab National Bank Rs 98 crore and Rs 95 crore. Weak banks such as Indian Bank, Dena Bank and Punjab and Sind Bank would also save Rs 50 crore annually in the post VRS era.
It is found that VRS had been opted mostly by officers (19 per cent) and at a lesser proportion by workman employees. Moreover, post-VRS position shows that productivity of the bank employees have increased by 26 per cent.
The 26 public sector banks, after extending VRS facilities to its employees in the year 2001-02, saved a whooping Rs 2,106 crore during the year 2001-02. As 10 per cent of the staff of public sector banks (PSBs) have opted for VRS, thus the salaries and wages bill declined by Rs 2,105 crore, i.e., from Rs 20,850 crore in 2000-01 to Rs 18,745 crore in 2001-02 showing a drop of about 10.1 per cent.
The saving would he, however, notional for the year as the banks have to provide Rs 2,346 crore as carried forward expenditure for VRS. In future, saving on salaries and wages will be around Rs 2000 crore every year once the banks finish charging the entire VRS expense to their profit and loss account. Banks were allowed to amortize the VRS outgo over four years.
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The data of 22 public sector banks available with the BS Research Bureau shows that savings on account of salaries accounted for around 16 per cent of aggregate net profit of 2001-02. Further, the ratio of staff expenses to operational expenses of 22 banks declined sharply to 71.2 per cent in 2001-02 from 75.2 per cent in 2000-01. In fact, the ratio has been the lowest in five years.
Among all the public sector banks, SBI has topped the gainers list with expenditure on account of salaries and wages (establishment cost) declining by Rs 1,079 to Rs 4,933 crore. In fact, the wage bill or SBI and associates banks have declined by Rs 1286 crore to Rs 6633 crore in 2001-02.
Bank of India being the second largest gainer with its staff expenses dropping by Rs 252 crore in 2001- 02 as compared to Rs 143 crore in 2000-01 and Canara Bank of Rs 131 crore. Other banks that showed remarkable savings on staff expenses include Dena Bank with Rs 112 crore, Bank of Baroda Rs 89 crore, Bank of Maharashtra Rs 88 crore, Union Bank of India Rs 69 crore and Syndicate Bank Rs 66 crore.
Public sector banks have shed over 1.0 lakh jobs between 2000-01 and 2001-02 through VRS.
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