Higher Pay For Top Level Bank Officials

Too many hurdles in way of raising top-level pay at PSBs-Economic Times 14.01.2015

 

By Madan Sabnavis

The principle of market economics is that for a similar undifferentiated product, the price should be almost similar. But this does not work when it comes to the labour market, especially when it comes to banks that have different ownership patterns.

 

Public sector bank (PSB) honchos rightly feel that they deserve better pay packets given that their counterparts in the private sector earn between Rs 4 crore and Rs 6 crore per annum, while they settle for around Rs 20- 25 lakh. Even if their perquisites are added, the difference remains wide, considering the private sector also rewards its management with stock options.

 

Thomas Piketty, who is still the flavour of the season, would say that in the capitalist world, the management appoints directors who, while representing shareholders, reward the management with extravagant compensations.

 

In return they are provided a good remuneration with possibly a commission thrown in. If it is in the hands of the board of directors, then for PSBs, the government, as owner, has to take the decision.

But there are issues here. In the order of hierarchy within the government, PSB heads come lower than the RBI, wherein salaries are marked along with civil services positions linked to those of members of Parliament and minsters and so on. Therefore, having a unilateral increase will be difficult, as banks cannot hike the salaries at higher levels but leave those below unchanged.

It is interesting to see how the average pay varies across various bank groups and staff structures. The table shows the average compensation received by employees in various bank categories based on RBI data. Also juxtaposed is the percentage of officers in total staff.

 

The table comes up with two revelations. First, on the compensation side, the average pay is much higher for PSBs compared with private banks. New private banks pay less than even old private banks. Foreign banks are the highest paymasters, at almost three times the industry average.

 

Second, on the employment front, public sector banks have a very hierarchical structure with officers being in the minority. As a corollary, it can be said that foreign banks with a very high level of officers have virtually low support staff. This can partly be due to less paper work, given that they would be less focused on the retail side, which requires more branches, staff, and officers handling their own affairs (though there would be outsourced agencies moving coffee cups).

 

The average pay at banks which have zero support staff shows mixed trends. Deutsche Bank averages Rs 31.4 lakh, while Axis is at Rs 6.13 lakh, Indus Ind at Rs 5.2 lakh, Kotak at Rs 7.64 lakh and Yes Bank at Rs 8.92 lakh. Quite clearly, having less support staff tends to make it possible to compensate officers better.

 

These statistics raise two conundrums. The first is that if PSBs have to increase their pay packages, then they need to do so across the board, which will not be possible given that there is a large number of support staff. This may not be in the ambit of the new structure, given the lower value added work being done. Unions will never agree to such one-sided packages.

 

Is it possible that just like PSBs have taken in lateral employment for specialists and paid them private sector salaries, the same can be offered for CMD positions? But then it has to be offered across all banks, which will entail changes in compensation to all employees — this won’t work.

The second is that within the new private banks, the inequality is really stark where the difference between the topmost pay and average pay could be as much as 80-90 times compared with PSBs, where the difference is at 2.5-2.7 times. In fact, the public sector does display a very egalitarian structure in contrast.

 

There is some talk of getting in private sector experts as CEOs of PSBs. This will not be possible unless the pay is increased as the incumbent has to also be prepared for so-called government interference. Interestingly, there have not been too many instances of PSB bankers leading private banks except at the inception stage in the early 1990s.

 

This is curious as no private or foreign bank has sought to take in a PSB executive as their head. Therefore, movement appears to be doubtful both ways.

Hence, while there is a strong case for increasing the salaries of PSB chiefs, implementation will be a challenge as we would need to take everyone along, which may not be possible.

 

6 banks, telecom firm to pay for credit card frauds-Times of India

In a landmark judgment on online banking frauds, six banks, a telecom giant and a card company have been asked to pay out Rs 1.06 crore compensation to customers who have been victims of various online frauds in the past two years. In most of the cases, customers had lost money to fraudsters but banks had held customers responsible for their accounts being compromised.

The order for compensation was issued by the state government's equivalent of a cyber crime court which is presided over by the principal secretary in charge of information technology. The principle secretary, Rakesh Aggarwal, functions as adjudication officer under Section 45 of the IT Act 2000. The banks that have been ordered to pay compensation include Central Bank of India, Royal Bank of Scotland, Punjab National Bank, IndusInd Bank, Yes Bank, State Bank of India. Other institutions who have been directed to pay are Vodafone and SBI Cards.

The order is significant as this is the first time that any authority has said that an individual's liability in respect of online frauds should be capped. The Banking Standards and Codes Board of India had earlier last year suggested that the onus of establishing liability in the event of online fraud should rest with the banks. Until now banks have been throwing up their hands whenever a customer's credentials were compromised, holding the customer fully liable for anyone hacking into his email or mobile.

Advocate Prashant Mali, who specializes in IT cases and has appeared for the complainant, said "Banks should ideally pay off the aggrieved consumer instead of making him run pillar to post and then spend money in courts and costly appeals. This way less harassment would be caused to consumers and confident online banking customers will evolve."
The largest order has been against SBI which has been directed to pay Rs 40 lakh to Chander Kalani whose funds were transferred to an account in London on the basis of an email. The fraudster had hacked into Kalani's email and instructed the bank to transfer funds. In his order directing SBI to pay a compensation of Rs 40 lakh, Aggarwal observed that "the Banking Codes and Standard Board of India (BCSBI) unit has issued a Code of Bank's Commitment wherein customers of such fraud will be liable to the extent of Rs 10,000 only and the bank has to make good the rest of the amount. But acceptance of this code by banks is not visible."

In another case, the account of Prabhakar Sadekar a businessman, with Punjab National Bank was hacked and funds transferred to accounts in IndusInd Bank and Yes Bank. Sadekar did not receive SMS alerts as his mobile accounts were also cloned. In this case Agarwal had held that banks had not followed RBI guidelines on money mule accounts and guidelines on information technology. Vodafone was asked to pay a compensation of Rs 20 lakh for not following reasonable security practices and procedure and the established guidelines before issuing a duplicate SIM card. PNB, IndusInd and Yes Bank have been asked to pay Rs 20 lakh, Rs 5 lakh and Rs 3 lakh respectively.

In the fourth case where a company, Raatronics, was defrauded of its account in Central Bank by changing the mobile number in the bank's online database, Central Bank and Royal Bank of Scotland were asked to pay Rs 8 lakh each for lack of due diligence. The adjudicating officer also ordered compensation of Rs 1.3 lakh and Rs 1.4 lakh for frauds committed upon users of SBI Credit Card and SBI's International Debit Card.