Mumbai: Running a state-owned bank in India pays little more than flipping burgers at McDonald’s and Burger King outlets in Los Angeles International Airport, where the minimum cash wage is $11.03 an hour. In India, state-run bank chiefs make about $11.40.
They do get perks that American wage-earners don’t: a car, a driver and free housing. Still, the heads of India’s five biggest state-owned banks earned salaries and bonuses of Rs.20 lakh to Rs.25 lakh ($32,400 to $40,500), based on the latest data available. That works out to about Rs.705 an hour on average for what bank spokesmen say are 60-hour workweeks that include Saturdays. Their average top pay is less than 5% of those at India’s private banks, where chief executive officers also earn stock options.
“Significant and widening compensation differences with private-sector banks, leading to the erosion of specialist skills,” is constraining the ability of government-controlled lenders to compete for market share and profits, according to a report last year by a panel appointed by the Reserve Bank of India (RBI). Market share by assets of state-run banks will fall 10 percentage points by 2025 from 73% in 2013, it stated.
Low wages at state-owned banks have prompted more than a million employees to threaten a four-day strike starting on Wednesday, demanding a 19.5% salary increase. A teller at a state-run bank makes less than Rs.20,000 a month, or about $1.70 an hour for a 48-hour workweek. Top management, including managing directors and chief general managers, aren’t members of the trade unions calling for the strike.
Indefinite strike
The banks are offering a 12.5% pay increase. Unions have also threatened an indefinite strike starting 16 March if the 19.5% increase isn’t met.
“Bank managements are not willing to give us a reasonable salary hike, saying that the banks cannot afford higher raises as profits are under pressure due to the rise in nonperforming assets,” C.H. Venkatachalam, general secretary of the All India Bank Employees Association, a union representing 500,000 mostly state-run bank employees, said in a phone interview from Chennai.
R.K. Dubey, head of Canara Bank until he retired in September, earned about Rs.20 lakh on an annual basis while running the country’s fifth-largest lender, based in Bengaluru, according to company disclosures. Mumbai-based State Bank of India (SBI) chairman Arundhati Bhattacharya’s annual salary was roughly comparable during her first year heading India’s largest bank. S.S. Mundra, who until July was chairman of India’s second-largest lender, Bank of Baroda, was the highest-paid, at Rs.25 lakh. The positions at Canara and Bank of Baroda remain vacant awaiting government appointees.
Same weight
The current and former chairmen declined to comment on their salaries, according to the banks’ spokesmen.
“They should be paid more and offered stock options like their peers in the private sector, as they are pulling the same weight,” Aditya Narayan Mishra, president of staffing in India for human-resources firm Randstad Holding NV, said in a phone interview from Bengaluru.
At India’s largest private lender, Mumbai-based ICICI Bank Ltd, CEO Chanda Kochhar was paid more than Rs.5.2 crore in the 12 months through March, according to the lender’s annual report. That works out to $263 per hour for a 60-hour week. While the amount includes a performance bonus, car and driver and other allowances, it excludes stock options of more than 290,000 shares for the year, the company’s annual report shows. The stock rose 60% last year.
Declining profits
Kochhar’s earnings were a little more than half of the $1.5 million salary paid to JPMorgan Chase and Co. CEO Jamie Dimon for 2013. Dimon’s total compensation for the year included restricted stock worth $18.5 million. Jiang Jianqing, chairman of China’s largest state-owned lender, Industrial and Commercial Bank of China Ltd, earned less than 2% of Dimon’s total compensation while reporting twice the profit of the New York- based bank.
India’s government holds a majority stake in 22 lenders including SBI, which in turn has a majority stake in five other banks. Declining profits as a result of slower loan growth and rising bad debt are eroding their capital buffers.
Stressed assets at government banks, including soured debt and restructured loans, rose to almost 13% of total lending as of 30 September, the highest level since 2001, central bank data show. The ratio stood at 4.4% for privately owned banks. Annual loan growth at state-controlled lenders fell to 8% as of September, 2 percentage points less than the country’s banking system, according to the data.
Not responsible
“The management shouldn’t hold back on salary increases that are due because of the rise in nonperforming loans,” said the union’s Venkatachalam. “They are not responsible for this. It is the guilty, the defaulting corporates, who should be punished.”
Unions have been seeking higher salaries since 2012, when the last agreement negotiated in 2007 expired.
The government calls on state-run banks for costly financial-inclusion drives. The latest, announced in August, was aimed at providing bank accounts to 75 million Indian households without access to the formal financial system.
“As state-run banks have to support various government schemes and financial-inclusion efforts, productivity and profit per employee is lower than private-sector banks,” Randstad’s Mishra said.
Aspiring candidates
State-owned banks “need to devise performance and merit-based differentiated compensation structures as well as promotion processes,” said Monica Agrawal, Gurgaon-based executive-search consultant for financial services at the India unit of Korn Ferry International.
Job openings at state-run banks still draw aspiring candidates. Last year, when SBI had 1,897 vacancies for trainee officers, 1.9 million people applied. That amounts to 989 job-seekers for each opening.
Entry-level salaries at state-run banks are higher than those at private-sector lenders. Applicants are also drawn by job security. Government-controlled lenders, unlike those in the private sector, tend not to fire employees.
At the equivalent of $1.70 an hour, entry-level state-run bank employees earn about $4,200 a year. Workers at Los Angeles airport establishments earn a minimum cash wage of $11.03 an hour plus a mandatory $4.81 for health-care benefits, for a total of $15.84. The federal minimum wage is $7.25.
China comparison
In China, the five largest state-controlled banks in 2013 paid their combined 1.7 million employees an average of 230,300 yuan ($27,200) in salaries, bonuses and benefits, according to data compiled from annual reports. China’s only private lender paid one-third more on average, the data show.
By the time India’s bank employees reach mid-management, the pay at private banks is more than twice that of public-sector salaries, Randstad’s Mishra said. The difference continues to widen as rank grows, he said.
“After putting in so many years in the state-run banks’ environment, most of them don’t want to move out of the comfort zone and let go of the job surety, lifestyle or pension benefits,” Mishra said. “Also, many of them would have lost the mindset and skills needed in the private sector.” Bloomberg
