The State Bank of India VRS

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The SBI was formed through an Act of Parliament in 1955 by taking over the Imperial Bank. The SBI group consisted of seven associate banks: State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Saurashtra State Bank of Travancore State Bank of Bikaner & Jaipur The SBI was the largest bank in India in terms of network of branches, revenues and workforce. It offered a wide range of services for both personal and corporate banking. The personal banking services included credit cards, housing loans, consumer loans, and insurance. For corporate banking, SBI offered infrastructure finance, cash management and loan syndication.4

Over the years, the bank became saddled with a large workforce and huge NPAs. According to reports, staff costs in 1999-2000 amounted to Rs 4.5 billion as against Rs 4.1 billion in 1998-99. Increased competition from the new private sector banks (NPBs) further added to SBI's problems. The NPBs had effectively leveraged technology to make up for their size. Though SBI had 9,000 branches, a mere 22% of those (1935 branches) were connected by through Internet. In contrast all of HDFC⁵ Bank's 61 branches were connected. By 2000, SBI's net profit per employee was Rs 0.43 million while HDFC's was Rs 0.96 million, and SBI's NPA level was around 7.18% as against HDFC's 0.73% (Refer Table I).

Table I
A Comparison between SBI & Some NPBs

Bank	NPAs/Net Advances	Profit Per Employee (Rs in Million)
SBI	7.18%	0.43
HDFC	0.77%	0.96
UTI BANK	4.71%	0.69
ICICI BANK	1.53%	0.78
GTB	0.87%	1.2
IDBI BANK	1.95%	1.15

Source: www.bankersindia.com

Analysts remarked that the very factors that were once hailed as the strengths of SBI - reach, customer base and experience - had become its problems. Technological tools like ATMs and the Internet had changed banking dynamics. A large portion of the back-office staff had become redundant after the computerization of banks. To protect its business and remain profitable, SBI realized that it would have to reduce its cost of operations and increase its revenues from fee-based services. The VRS implementation was a part of an over all cost cutting initiative.

The VRS package offered 60 days' salary for every year of service or the salary to be drawn by the employee for the remaining period of service, whichever was less. While 50% of the payment was to be paid immediately, the rest could be paid in cash or bonds. An employee could avail the pension or provident fund as per the option exercised by the employee. The package was offered to the permanent staff who had put in 15 years of service or were 40 years old as of March 31, 2000.

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4] The process of involving numerous different lenders for providing various portions of a loan.
5] Housing Development Finance Corporation.

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