India Bank Employees Strike of 22nd and 23rd August 2012 – What are the Issues?

Employees from around 47 banks in India are on a two-day strike on 22nd-23rd August to protest the proposed reforms in the banking sector and outsourcing of jobs.

This strike is not about increasing wages but on those issues which, when implemented, may perhaps help in making banking sector function with increased efficiency. Now let us have a look at the issues on which around 10 lakh bank employees and officers working in 27 public sector banks including State Bank of India (SBI) and 12 old generation private sector banks and eight foreign banks have resorted to the extreme measure of disrupting work of financial sector.

At the centre of the dispute is Khandelwal Committee Report. This 186 page report is formally known as “Report of the Committee on HR Issues of Public Sector Banks”  and was published in June 2010. The recommendations contained in the report are mainly on the following:

  1. Manpower and Recruitment Planning: The recommendations in this regard include achieving Officer – Clerk ratio of 1:0.50 in urban areas and 1:0.75 in semi-urban rural areas, achieving staff cost ratio of 50% in the next 5 years, outsourcing of non-core activities, raising recruitment standards, recruiting 50% of the officers directly, banking qualifications to be mandatory for officer recruitment, graduation to be minimum for clerical staff and 10th standard for sub-staff and fresh recruitment of clerks only for rural and semi-urban branches.
  2. Training and Skill Development of Staff: Creation of talent pool in identified areas, training colleges to function as centre of excellence, importance to e-learning and alternate delivery channels, two year training mandatory for directly recruited officers.
  3. Career Planning: Systematic job rotation, mandatory rural service of three years for officers, fast track promotions, sabbatical of two years for women employees.
  4. Performance Management: All categories of staff to be covered by PMS, introduction of 360 degree feedback for Scale IV and above.
  5. Succession Planning and Leadership Development: System to groom potential successors, common pool of GMs for entire banking industry, HR Head to be given importance.
  6. Employee Engagement and Motivation: Online resolution of grievances, suggestion schemes, recognition of learning initiatives.
  7. Professionalization of HR: Position of ED (HR) to be created in large banks, recruitment of HR professionals and HR agenda being driven by top management as a priority and HR audit to be conducted every two years.
  8. Wages, Service Conditions and Welfare: Movement away from industry-wide wage settlements on the principle of “Capacity to Pay” and Staff Welfare allocation guidelines.
  9. Reward Management: Fixed and variable pay concept. A portion of wage will be fixed and balance will vary according to performance. Introduction of incentive schemes with at least 50% earmarked for operational functionaries, 25% for branch heads in rural and semi-urban centres.
  10. Corporate Governance: Govt. Requested to consider separating the position of the Chairman and Managing Director.
  11. Govt. To consider Navaratna status to some PSBs.  
  12. Creating Risk Culture: Committee approach for sanctioning of large loans, accountability and pre-mature retirement as one of the tools to enforce accountability and  staff accountability policy for NPAs.
  13. Industrial Relations: PSBs to review internal settlements that affect mobility of staff.

 

From the above recommendations, it appears, the dispute is around the following:

  1. Bank specific wage structure based on profitability, productivity etc.
  2. Fixed and variable pay concept. A portion of wage will be fixed and balance will vary according to performance.
  3. Settlements with unions on transfer of employees to be reviewed
  4. 50% of officer vacancies to be filled directly
  5. The minimum qualification for appointing a clerk to be graduation and 10th standard for Sub-staff
  6. Outsourcing of non-core bank jobs which is unfair labour practice.

A glance at the above disputed issues will make it apparent that disrupting financial sector for two days on such issues may be a bit unfair. These issues are do not appear to be blatantly anti-employee but on the other hand may facilitates the PSBs to increase their efficiency and serve the nation in a more productive way. This is an era of extreme competetion with very thin margins and fast changing consumer preferances. A rigid and inflexible approach may make PSBs compete with Air India and others for Govt. funds to survive! It is time for PSBs to redifine their strategies and learn from successful corporates on defining their HR policy. When some PSB banks are aspiring to become world class and play a major role in the international stage, there is a need to have a HR policy which does help these banks to achieve these goals.

Only thing is that such a realization should dawn on the employees of PSBs. There are more serious issues with these banks which need to be addressed such as increasing NPAs, increasing costs and reducing efiiciency.

 I am still wondering why some of the private banks and foreign banks are joining the strike!

Recent Financial Scandals (August 2012) – Knight Capital’s Faulty Algorithm

The Knight Capital Group  is an American global financial services firm engaging in market making, electronic execution, and institutional sales and trading. With its high-frequency trading algorithms Knight was the largest trader in U.S. equities, with a market share of 17.3% on NYSE and 16.9% on NASDAQ.

Knight’s largest business is market making in U.S. equities. Its Electronic Trading Group (ETG) covers more than 19,000 U.S. securities with an average daily trading volume of more than 21 billion dollars (May 2012).  Furthermore, Knight makes markets in U.S. options and European equities.

On August 1, 2012 Knight Capital’s trading activities caused a major disruption in the prices of a large number of companies listed at the New York Stock Exchange. This was attributed to putting into use a new software by Knight Capital on that date. The disruption was catostrophic – for example, shares of Wizzard Software Corporation went from $3.50 to $14.76. This caused Knight Capital’s stock price to collapse. Knight Capital took a pre-tax loss of $440m sending shares lower by over 70% from before the announcement. On the morning of August 3rd, its share price was posted at $1.51, down from $10 on July 31st, reflecting a loss in market value of $850m.

The nature of the Knight Capital’s unusual trading activity was described as a “technology breakdown” – a software mistake caused by a faulty trading algorithm. While details are still emerging, it appears the prices at the opening of more than 100 securities might have been directly affected, with a particularly large impact on a half-dozen.

This is not the first time Knight has encountered problems. It emerged in the 1990s as an alternative trading venue to the established firms and faced the prospect of an early death. In the midst of a crisis in 2002, Thomas Joyce became its chief executive, moving over from Merrill Lynch where he had run one of the largest trading platforms in the country. He is broadly thought to have done a good job at Knight. And though its customers fled en masse on August 1st, and may only return slowly, the head of a trading desk at one firm said he believed there was a good possibility that lost business could be largely recovered over the course of a year, though probably not sooner. 

The head of another firm that both competes and works with Knight said that if the trading disaster had occurred on a Monday, the firm would have been destroyed, but by occurring on a Wednesday, it was likely that a deal could be arranged over the weekend. Still, he added, Knight’s experience demonstrates that trading algorithms are potential weapons of mass destruction for the firms using them, and the broader financial system. Knight’s problems follow costly trading disasters tied to the public offering of Facebook on the NASDAQ and the BATS Global Market on its own electronic exchange.

On Sunday Aug. 5 the company managed to raise around $400 million from half a dozen investors in an attempt to stay in business after the trading error. The financing would be in the form of convertible securities, bonds that turn into equity in the company at a fixed price in the future.

(Compiled from media reports)