Voluntary Retirement Scheme in
South Asian
Banking Sector
Thinley Namgyel (Intern)
SASFP
TABLE OF CONTENTS
Introduction ....................................................................................................................... 2
Overview of the Banking Sector ...................................................................................... 3
Background: .................................................................................................................... 3
Structure & Ownership: .................................................................................................. 4
Performance of the Banking Sector ................................................................................ 5
Reasons for Poor Performance........................................................................................ 6
Voluntary Retirement Scheme......................................................................................... 9
Rationale for VRS ......................................................................................................... 10
World Bank’s policy ..................................................................................................... 11
Shortcomings of VRS ................................................................................................... 12
Review of VRS Implemented – Sri Lanka, Pakistan & India .................................... 19
Broad Parameters of VRS ............................................................................................. 19
Achievements ................................................................................................................ 20
Comparison of Schemes ............................................................................................... 22
VRS Planned – Bangladesh & Nepal ............................................................................ 25
i. Bangladesh Bank ....................................................................................................... 25
ii. Nepal ......................................................................................................................... 26
iii. Bank of Ceylon ........................................................................................................ 26
Suggested Framework for VRS ..................................................................................... 27
Conclusion ....................................................................................................................... 28
ANNEXURE 1 ................................................................................................................. 29
Schemes:........................................................................................................................... 29
State Bank of Pakistan .................................................................................................. 29
Central Bank of Sri Lanka ............................................................................................ 30
State Bank of India........................................................................................................ 32
Nepal Bank Limited (Planned) ..................................................................................... 32
Bangladesh Bank (Planned) .......................................................................................... 33
1
Introduction
The voluntary retirement scheme has been implemented by some of the Central
Banks and the Public Sector Commercial Banks in South Asia, since mid-nineties, as part
of the banking sector reform process aimed at improving performance and efficiency. So
far, the Central Banks in Sri Lanka and Pakistan and the Public Sector Commercial
Banks in India and Pakistan have offered voluntary retirement schemes to about 113,847
employees at a total cost of US $ 2,854 m or per employee costs of approximately US $
25,000. Similar plans are underway in Nepal and Bangladesh to offer voluntary
retirement scheme to about more than 4,000 Central Bank and Public Sector Commercial
bank staff.
The main purpose of this paper, therefore, is to learn and understand how VRS
was implemented by the various banks in South Asia by a) reviewing the schemes
implemented across South Asian banks in terms of the process and methodology adopted
for targeting redundant employees, for determining compensation package, and
provisions for retraining/counseling of voluntarily retired employees, b) assessing how
the common problems of VRS such as adverse selection, over compensation and
revolving door syndrome, were addressed/minimized, c) undertaking a cross country
comparison of the schemes.
The paper consists of the overview of the banking sector, general discussion on
the VRS and the review of VRS implemented in Sri Lanka, Pakistan and India and the
VRS planned in Nepal and Bangladesh.
2
Overview of the Banking Sector
Background:
The banking sector in South Asia is dominated by the public sector commercial
banks that account for more than 50 % of the total banking assets. As a result, the
performance of the public sector commercial banks reflects the overall performance of
the banking sector in South Asia, which has been poor when compared to that of private
commercial banks and foreign owned commercial banks. There are number of reasons for
the poor performance of the public sector commercial banks, some of which include:
1.
2.
3.
4.
5.
6.
Poor governance and management;
Weak supervision and monitoring mechanisms;
Lack of focus;
Ineffective human resource management policies;
Limited computerization and automation;
Excessive politicized Trade Unions.
These factors have resulted in weak, inefficient and unproductive public sector
commercial banks with large levels of non-performing assets (ranges from about 12 % in
India to about 60 % plus in Nepal) and high operating costs of which personnel costs
alone amounts to about 20-30 % of the total expenditure in public sector commercial
banks as compared to about 10-15 % in the private banks and foreign commercial banks.
The high operating costs and the large levels of non-performing assets have resulted in
increased cost of borrowings thereby constraining investments, economic growth and
employment generation.
Similarly, the performance of the Central Banks has been weak in terms of
effective supervision and regulation of the financial sector due to weak human resources,
bloated bureaucracy and lack of computerization and automation, amongst others. The
Central Banks, therefore, have launched on reforms to restructure the organization by
devolving non-core functions, improving human resource base, reducing bureaucratic
layers and implementing computerization/automation. As a result, VRS has become a
necessary component of the reform program to for redundant employees.
The South Asian economies recognizing the vulnerabilities of a weak banking
sector on economic growth and financial stability have launched on banking sector
reform programs, since the mid 1990s, aimed at improving the performance and
efficiency of the public sector commercial banks and also in preparation for privatization
of some of these public sector commercial banks. The various reforms measures
launched/planned include strengthening of regulatory and supervisory framework,
restructuring/privatization of public sector commercial banks and increased
computerization/automation.
3
Staff rationalization has been one of the major components of restructuring to
reduce costs and improve productivity by rationalizing the number of staff and bank
branches; outsourcing non-core functions to the private sector; redefining human resource
management policies and offering voluntarily retirement schemes to surplus staff .
Structure & Ownership:
The banking sector in South Asia consists of the Central Bank, Public Sector
Commercial Banks/Nationalized Commercial Banks, Private Sector Banks, Foreign
Commercial Banks and specialized banks providing mainly agriculture and industrial
credits. The public sector banks account for more than 50 % of the total banking assets,
inspite of private and foreign commercial banks dominating the market in terms of
number of banks.
Table 1 – Banking Structure
Pakistan
India
Sri Lanka
Central Bank
State Bank Reserve
of Pakistan Bank of
India
Public Sector 2
27
Commercial
Banks
Foreign
21
42
Commercial
Banks
Private
13
32
Commercial
Banks
Others
3 Provincial
Banks and
3
specialized
banks
Nepal
Bangladesh
Bhutan
Afghanistan
Central
Bank
of
Sri Lanka
2
Nepal
Rastra
Bank
2
Bangladesh
Bank
Royal
Monetary
Authority
2
Da
Afghanistan
Bank
2
16
9
Joint 12
Venture
0
0
9
4
30
0
0
National
Saving
Banks & 6
Regional
dev. Banks
2
Develop
ment
Banks
4 specialized 1
4
banks
developme
nt bank
4
4
Figure 1: Ownership of Banking Assets
80%
70%
60%
50%
40%
30%
20%
10%
0%
India
Pakistan
Public Sector Banks
Sri Lanka
Bangladesh
Private Sector Banks
Nepal
Foreign Banks
Source: Annual Accounts /Pakistan Financial Sector Assessment 1999-2000/Nepal Financial Sector Study
2002.
Performance of the Banking Sector
Some of the performance and profitability indicators such as NPL to advances,
net profit to assets, expenditure to income and earning per employee indicate relatively
weak performance of the public sector commercial banks when compared to that of the
private sector banks and foreign owned commercial banks. The high levels of non
performing loans in the public sector commercial banks is mainly due to lack of effective
supervision and monitoring, limited staff skills in evaluating loan applications, lack of
commercial culture, and loans being approved under political influences. Similarly, the
costs of operations in the public sector commercial banks are higher than in the private
and foreign banks, partly due to overstaffing, lack of computerization resulting in most
tasks being undertaken manually, and performance of non-banking functions on behalf of
the government for which the banks are not compensated.
Table 2: Selected Banking Indicators – 2000-2001
NPL to advances:
1. Public Sector
2. Private Sector
3. Foreign Banks
Net profit to assets:
1. Public Sector
2. Private Sector
3. Foreign Banks
Total Exp. to Total Income:
1. Public Sector
2. Private Sector
3. Foreign Banks
India
Pakistan
Sri Lanka
Bangladesh
12.4 %
5.1 %
6.8 %
24.4 %
10.7 %
5.1 %
17.8 %
14.7 %
7.7 %
37.1 %
16.9 %
3.3 %
0.42 %
0.71 %
1.00 %
0.1 %
0.3 %
0.6 %
0.24 %
1.08 %
3.68 %
0.5 %
1.2 %
3.0 %
86.67 %
82.83 %
74.09 %
96.8 %
88.8 %
87.2 %
86.69 %
86.10 %
62.92 %
95 %
88.1 %
75.7 %
5
Income per employee (US $):
1. Public Sector
2. Private Sector
3. Foreign Banks
1,200
4,043
16,760
25,862
53,448
144,827
35,384
47,692
67,092
71
3,267
28,571
Source: Pakistan: Financial Sector Assessment 1990-2000; Reserve Bank of India (2000-01). Bangladesh Bank
Annual Report 2001-2002; CBSL.
Reasons for Poor Performance
The reasons for the poor performance of the public sector commercial banks and
the Central Banks are ineffective human resource management policies, limited
computerization, excessive influence of the employee unions, corruption and
performance on non-banking functions. These are some of the constraints generally faced
by a public sector organizations and do not necessarily apply to all bank across South
Asia.
i.
Ineffective Human Resource Management Policies
The public sector commercial banks and the Central Banks generally follow
government’s guidelines on human resource management policies for recruitment,
promotion, salary structure and separation. These guidelines tend to lack meritocracy
and incentive system of rewarding the performer and penalizing the non-performer.
Consequently, the recruitment, promotion, separation procedures are restrictive and
salaries compressed making employment within the public sector commercial banks
highly unattractive for well qualified, skilled, productive professionals. As a result,
most employees in the public sector commercial banks lack necessary expertise and
skills required to work in a competitive and challenging environment. Thus, the
quality of human resources are relatively poor when compared to that in the private
and foreign owned commercial banks, which provide better salaries, better career
advancement opportunities and reward systems.
Also the direct hiring is generally restricted so most vacancies are filled through
internal promotion leading to large number of clerical staff being promoted to officers
levels. Firing of staff is also difficult due to oppositions from the employee unions
and the lengthy procedure involved. The time-based and seniority based promotion
system does not motivate staff to perform as irrespective of performance, staff are
promoted after having completed the required minimum number of years.
The compressed salary structure and the lack of incentives is not a common feature in
most public sector commercial banks. On an average, it is estimated that the salary of
top management is only about four to five times higher than the lowest paid
employee in the organization. When compared to the private sector, the CEO in
public sector banks earn much less than the CEO in private banks (indications are that
CEO in public sector bank in Bangladesh earn about 1/5 of what a CEO in private
sector banks earns). The salary structure is based on job titles and seniority rather
than on an individuals capabilities and performance. In some countries like Sri Lanka,
decompression of salary is not permitted legally.
6
These factors have resulted in oversized bureaucracy characterized by staff profile
consisting of high ratio of non-professionals to professionals (averaging about 3:1),
fairly old organization in terms of age structure with average staff age being around
45 years and more and large percentage of employees with more than 15 years of
service.
ii.
Limited computerization:
The pace of computerization has been much slower in the public sector commercial
banks than in the foreign and privately owned commercial banks. This has been due
to oppositions from the trade unions for fear of job loss, lack of urgency on the part of
management to computerize, lack of funds and lack of IT personnel within the
organization to advocate the benefits of IT. As a result, most of the operations in the
public sector banks are carried out manually employing large number of people. The
limited computerization that exists is concentrated in the head office and branches in
major cities.
According to the study done by the Indian Off-Site Monitoring and Surveillance
Division of the Department of Banking Supervision, the public sector banks in India
had computerized only 14 % of the branches as compared to 30.7 % in old private
sector banks, 100 % in new private sector banks and 98 % in Foreign Banks (2000).
The number of computer literate staff was also the least in the public sector banks
which stood at 21.5 %, whereas it was 34 % in old private sector banks, 100 % in new
private sector banks, and 88.5 % in foreign banks. In Bangladesh, about 19 % of the
public sector banks were computerized, as compared to 38 % for private commercial
banks and 100 % foreign banks, according to 2001 Study on State of E-Finance in
Developing Countries. In Sri Lanka, while 100 % computerization is yet to be
achieved most banks are now computerized. The process has been slowly mainly due
to the strong resistance from the employees union for fear of job losses. However,
recent indications are that more and more employees unions across South Asia are
beginning to accept computerization as inevitable for the survival of the banks and
themselves. For example in India, the All India Bank Employees Associations have
reached an agreement with the Indian Banks’ Association to allow banks to introduce
computerization. Therefore, efforts are now being directed to strengthen the
computerization process within the public sector banks.
iii.
Excessive influences of the Employee unions:
The employee unions have been another major source for opposing reforms in the
public sector commercial banks. In South Asia, the employee unions are strong,
active, militant and have significant political support. Large number of unions exist
within the banking sector- on an average there are at least 3-4 unions actively
involved. The membership in the unions comprises largely of low level employees,
also the most vulnerable group when it comes to reforms, due to which excessive
influence is exerted on the human resource management aspects and other policies
7
that threaten the position of the employees in the banks, such as computerization.
Also, as staff reductions diminishes the power-base of the unions any move in these
directions are opposed by the unions. This makes it extremely difficult for the banks
to implement new personnel policies and procedures aimed at improving efficiency
and productivity as a result it continues to perform poorly.
It is also believed that the labor legislations in South Asia provides greater rights to
the employees then the employers and this has made implementation of human
resource management reforms difficult. In order to balance the situation, labor
policies and laws are being revised in Sri Lanka and Pakistan to minimize the
negative influences of the unions on the reform process and in India, banks have
entered into agreements with the unions (in case of computerization) to introduce
reform measures.
iv.
Corruption:
It is believed that the level of corruption tends to be higher in public sector
commercial banks than in private or foreign commercial banks, due to low levels of
salary and lack of incentives. Generally, corruption within the banking sector takes
place in the form of borrowers offering bank officials with cash, gifts, other favors in
return for sanctioning of the loans with minimum assessment, over valuing borrowers
collateral, or by extending loan repayment periods and loan amounts without required
authorizations.
v.
Performance of non-banking functions:
The public sector commercial banks are often required to perform functions not
related to their core business such as disbursement of teachers salaries, payments to
pensioners, payment of government bills etc for which banks are not compensated for
the services.
These factors have resulted in high costs and ineffective service delivery by the public
sector commercial banks. Efforts are being made to improve the performance of the
banking sector. Most South Asian countries have already launched or are in the process
of launching the banking sector reforms aimed at improving efficiency and productivity
of the banks. Among others, restructuring measure is being actively pursued.
Increasingly, the banks are refocusing on core competencies; redefining human resource
management policies; rationalizing branch numbers; devolving and outsourcing non-core
functions; increasing office automation and computerization; and the surplus staff are
being offered voluntarily retirement schemes.
8
Voluntary Retirement Scheme
Most Central Banks and the public sector commercial banks, across South Asia,
have implemented or are in the process of implementing the Voluntary Retirement
Scheme (VRS) to improve performance and efficiency.
VRS has been implemented by the Central Banks of Sri Lanka; State Bank of
Pakistan (Central Bank) and the three nationalized commercial banks in Pakistan; and 26
out of the 27 public sector commercial banks in India. Similar plans to implement VRS
are underway in Bangladesh Bank (Central Bank of Bangladesh), the Nepal Rastra Bank
(Central Bank), Nepal Bank Limited and Rastriya Banijya Bank. Table 3 and 4 illustrate
the status of implementation, number of staff reduced, total cost and cost per employee.
Table 3: Schemes Implemented
Number of employees
retrenched:
Central Bank
Public Sector Banks
Total
Total Cost of Scheme
Central Bank
Public Sector Banks
Total (US $)
Cost per Employee
Central Bank
Public Sector Banks
US $
Sri Lanka
Pakistan
India
697
0
697
828
11,022
11,850
101,300
101,300
$ 22 m
0
$ 22 m
$ 27 m
$ 305 m
$ 332 m
$ 2,500 m
$ 2,500 m
$ 32,000
0
$ 32,000
$ 33,000
$ 28,000
$ 28,000
$ 24,000
$ 24,000
Note: The Central Bank of Nepal has implemented VRS in the past where about 180 employees were
retrenched.
Table 4: Schemes Planned
Number of employees
planned:
Central Bank
Public Sector Banks
Total
Total Cost of Scheme
Central Bank
Public Sector Banks
Total(Local Currency)
Total (US $)
Nepal
Bangladesh
401
4,914
5,315
1,250
Rs. 125 m
Rs. 3,009 m
Rs. 3,134 m
$ 40 m
Taka 2,198 m *
1,250
Taka 2,198 m
$ 38 m
9
Cost per Employee
Central Bank
Public Sector Banks
Local Currency
US $
Rs. 0.312 m
Rs. 0.612 m
Rs. 0.589 m
$ 7,500
Taka 1.7 m
Taka 1.7 m
$ 30,000
* Includes Tk. 2,096 m for outstanding loan adjustment (Tk. 1,302 m) and write off (Tk. 794 m) and cash
payment of Tk. 102 m. Therefore, actual cash cost of the scheme would be Tk. 102 m or Us $ 1.7 m or per
employee cost of Tk. 81,600 or US $ 1,400.
Rationale for VRS
Like many public sector enterprises, the public sector commercial banks and the
Central Banks across South Asia suffer from bloated bureaucracy and over-staffing.
Estimates indicate overstaffing in various Central Banks and Public Sector commercial
Banks as follows:
Table 5: Estimated overstaffing
Central State
Bank
Bank of
of Sri
Pakistan
Lanka
Existing
1,953
number of
employees
Employees 1,009
Targeted
for VRS
%
52 %
Targeted
7,158
Public
Sector
Banks
in
India
(26)
863,117
Nationalized Bangladesh Nepal
Commercial Central
Rastra
Banks in
Bank
Bank
Pakistan (3)
(Central
Bank)
Public
Sector
Commercial
Banks in
Nepal (2)
50,343
5,718
2,163
10,844
Na
177,405 25,636
1250
401
4,914
20 %
22 %
18 %
45 %
51 %
Large scale staff reductions are politically, legally and socially difficult, if it was
to be done through enforced retirement. Politically it is difficult as most of the
government’s in South Asia are democratically elected and any actions to displease the
unions and the public at large could prove costly in terms of votes. Legally, forced
retirements are not permitted, it requires the approval of the government and has to be
adequately compensated. Socially, it would be difficult due to lack of adequate social
safety nets, extended family culture where one not only support his/hers immediate
family but also extended family and also as most of the other benefits such as housing,
medical, education etc are tied to the job once the person losses the job he/she would also
loss these benefits. Therefore to avoid political, legal and social problems, most banks
have opted to “buy out” redundant staff by offering severance pay to encourage them to
leave the banks on voluntarily basis.
10
VRS therefore is politically, legally and socially less sensitive. Since the scheme
is on voluntary basis and the decision lies with the employee there is less resistance from
the employees and the unions; socially it is more acceptable for the employees to leave
on their own than to be fired; and staff reduction can be achieved within a shorter period
of time as VRS are time bound and normally implemented within a period of 2-3 months.
The other important feature of the VRS, besides reducing excess staff and
lowering staff costs, are delayering of bloated bureaucracies, reducing number of older
staff and staff in certain grades – gardeners, drivers, canteen staff, security personnel etc,
bringing in of new skills (accountants, lawyers etc), improving cost ratios, improving
ratio of professionals to non-professional staff thereby improving performance and
efficiency.
However, for VRS to be successful it has to be fairly attractive in terms of
compensation in order to induce employees to voluntarily accept early retirement. This
gives rise to potential problems of productive employees leaving the organization,
overpayment and re-hiring. These are also some of the major concerns of the World Bank
as emphasized in the Operational Memorandum for Financing Severance Pay in Public
Enterprise Reform Operations dated April 2002.
World Bank’s policy
The Operational Memorandum dated April 5, 2002 allows financing of severance
pay for supporting reforms in the public sector, including, inter alia, central and local
levels of ministerial departments and other entities providing public services as well as
public enterprises, whether wholly owned or majority owned by the government. It notes
that severance pay financing may be used to support retrenchment as an integral part of a
broader program of productivity enhancing public sector reform.
The severance pay can be financed through adjustment lending or investment
lending. Adjustment lending is suitable when the retrenchment, as a part of the broader
reform process, is focused mainly on short-to-medium term policy reform and is likely to
be sustainable without accompanying specific investments. It could include singletranche operations or multi-tranche operations. Single tranche is suitable when the set of
reforms can be implemented together while multi-tranche would be appropriate when the
implementation of reforms is in sequence. Investment lending is suitable when reforms
process are carried over medium to long term institutions building process and its
sustainability depends on accompanying specific investments.
The financing of severance pay can be considered when the macroeconomic and
sector policy framework are satisfactory and sustainable. The operations must be based
on adequate analysis of the broader public sector reform program, the extent and structure
of overstaffing, measures to address them and the social impacts of the measures planned.
Measures to mitigate the risks of adverse selections, overpayments and moral hazards
have to be clearly developed. The legal, political and social impacts of retrenchment have
to be taken into consideration in the design of the scheme to avoid negative impacts.
11
Shortcomings of VRS
The major shortcomings of the VRS are adverse selection - productive employees
leaving the organization as they have better opportunity of finding jobs elsewhere; over
compensation – as compensation packages are made attractive to induce more staff to
leave voluntarily; revolving door syndrome – whereby the retired employee is rehired by
the same organization or within the same sector.
i. Adverse Selection
Adverse selection is one of the major problems of VRS as it has potentials to
induce productive employees to leave the organization since they have better prospects of
finding a new job than the unproductive employees. The risks would be higher if the
scheme is overcompensated, if career advancement opportunities and salary structure in
the present organization are poor relative to that of the private sector or other
organization performing similar functions and if the eligibility and non-eligibility criteria
are not well defined. Therefore, to minimize the risk of adverse selection severance
payment should not over compensate for the job loss, eligibility and non-eligibility
criteria should be well defined and human resource management policies needs to be
improved. It is essential to carry out human resource audits to determine the levels and
types of skills required, determine existing skill gaps and the surplus staff to be offered
VRS and based on which the eligibility and non-eligibility criteria could be framed.
a. How was it done in South Asian Banks?
Most banks had fairly well defined target group which was based on the review of
existing staffing profile and skill gaps. The staffing profile across South Asian banks
indicate majority of staff are more than 40 years old, the ratio of clerical staff to officers
averaged around 3:1, and high percentage of staff with more than 15 years of services in
the bank. Therefore, the main objectives of the VRS was to reduce the average age
profile of the bank; balance the ratio of clerical staff to officers and to retire redundant
staff as a result of outsourcing, closure of branches and increased computerization.
Adverse selection was not a major problem as the target group were mainly clerical staff
– many of whom became redundant following devolution and outsourcing of non-core
functions, computerization etc, and those staff more than 40-45 years age. Most banks
also included the provision of reserving the right to accept or reject VRS application
which allowed banks to screen the applications to prevent productive employees leaving.
Those staff who were essential to the organization such as employees with high
levels of education/skills, specialized staff such as lawyers, IT experts, chartered
accountants were excluded from the scheme. Also, those staff against whom disciplinary
action were pending, those under special contract for finite period were excluded.
12
Table 6 – Eligibility and Non-Eligibility Criteria
Sri Lanka Central Bank
Eligible
1. Min. 10 yrs. Service
and 40 years or more.
2. All minor employees.
3. Employees in
departments where
functions were
outsourced.
Noneligible
1. Very senior
management.
2. Staff with
PhD/Maters degree.
3. Staff with special
qualifications
(Lawyers, CA, IT)
4. Employees under
finite contract.
5. Employees under
pending disciplinary
action.
6. Security officers.
India Public
Sector Banks
1. 15 years of
services or 40
years or more.
1. Specialist
officer/employ
ees under
service
bonds/special
arrangements.
2. Employees
under pending
disciplinary
action.
3. Any other as
may be
specified by
the Board
Bangladesh
Central Bank
Staff 40 years or
more and 10
years or more of
services.
Nepal Bank Ltd
No age bar. 15
years of services or
more.
Rastriya Banijya Bank
No age bar. 15 years of
services or more.
ii. Over-compensation:
The other problem of VRS is determining the optimum level of compensation for
the job loss. A worker who is offered less than full compensation would prefer to stay
while the worker who has been offered more than full compensation would take the offer
and leave. The risk of overcompensation is even more when the scheme is being funded
by a donor and the financial implications to the government is minimal resulting in more
emphasis being placed on number of staff to be reduced rather than on the cost of the
scheme. Therefore, overpayment is a concern which has also been expressed in the World
Bank’s Operational Memorandum for financing of severance payment.
Overcompensation not only makes the scheme financially unviable but it also sets a
precedence for future schemes. To avoid such situations, a detailed economic/financial
analysis of the scheme needs to be undertaken to ensure viability of the scheme. To
ensure ownership and accountability, government’s contribution to the scheme is
necessary.
Literature suggest that tailoring severance package to observable
characteristics such as age, education, skills etc would reduce the cost of staff reduction.
Some attempts have been made in Bangladesh to develop a equitable
compensation scheme such as the recommendations of the Mustafiz Committee and the
Mannan Committee. The recommendation of the Mannan Committee was used for
implementation of VRS in Bangladesh Jute Mills corporation, including Adamjee Jute
Mills where more than 25,000 people were successfully retrenched in mid-2002.
Table 7: Benefits Recommended over and above Gratuity 1
Length of Service
25 years and above
20-25 years
15-20 years
10-15 years
Mustafiz Committee (%)
10
14
17
22
Mannan Committee (%)
13
18
22
27
Source: Report of the Sub-Committee, headed by the Minister for Labour and Manpower, April 1997.
In India, the legal requirement as per Industrial Dispute Act, is payment of 15
days salary for each year of completed services, in practice, compensation paid has been
an average of 2 months salary for every year of services or about 4 times more than what
is stipulated by law. This has been the case as payment of 15 days salary has been found
to be insufficient to compensate for the job loss.
a. How was it done in South Asian Banks?
Most VRS scheme were developed using the salary and number of years of
services to determine compensation package, though according to World Bank research
such formula tends to overcompensate by as much as 20 %.
1
Gratuity amounts to two months of last drawn pay for each year of service.
The compensation package offered ranged from about US $ 24,000 per employee
in India to about US $ 32,000 in Sri Lanka. It included severance compensation (2-3
months of basic pay for every year of service on an average), pensions benefits, gratuity,
provident funds and compensation for accumulated leave balance (see table 8).
The severance payments were made in one installment. However, in India option
to settle payments in two installments was permitted - a minimum of 50 % in cash was
required to be paid as first installments immediately and the balance could be paid either
in cash or in the form of bonds within a stipulated time frame.
15
Table 8 – Compensation Package
Service
Compensation
Pension
benefits
Sri Lanka
India
i.
i. 2 months salary
(plus stagnation
increments plus
special
allowance plus
dearness relief)
for each
completed year
of service or
the salary for
the remaining
number of
months service
left whichever
is less.
1 months gross
salary for each
year of past
services.
ii. 2 months gross
salary for each
year of
remaining
services upto
60 years of
age.
i.
ii.
25 years or
more: 90 % of
current
pensionable
salary and nondeductible
commuted
pension.
Less than 25
years: prorated reduction
i. Pension
including
commuted
value of
pension,
banks
contribution
towards
provident
fund as the
case maybe,
Pakistan HBL
i.
Bangladesh Bank
2.75 months
pay for each
completed of
service or.
ii. 1.25 months
basic pay for
remaining
years of
services –
max. 90
months pay.
i. Three months
basic pay in
lieu of notice.
ii. Accumulated
leave upto 12
months.
For staff less than
25 years of
services as per
commutation.
Entire pension
calculated at 80 %
of current basic
salary, commuted at
existing rate of Tk.
200 and Tk. 117 for
1st half and 2nd half.
For staff opting for
gratuity, package
comprise of 2
Nepal Bank Rastriya Banijya
Ltd
Bank
Group I: 25
Group I:
years or more employees with
of services –
more than 20
4.5 months
years or more of
per year.
services – 5.4
Group II: 20- months salary
24 years of
per years of
services - 4.6 services.
months per
Group II: 15-19
year of
years of services
services.
– 6.3 months
Group III:
salary per years
15-19 years
of services.
of services –
3.8 months
per year.
House Loan
of pension
from 89-75 %
upto 10 years
of service @ 1
% point for
each year
below 25 years
and deductible
commuted
pension.
Repayment as per
terms applicable to
bank employees
Provident
Fund
Subject to
deductions.
Medical
benefits
Same as for
pensioners
Leave
encashment
Other benefits
As per entitlement
ii. Gratuity as
per Gratuity
Act/ Service
Act
As per banks rules.
As per accumulated
leave.
months pay for
every years of
service.
Adjusted against
pension and
provident fund
balance.
Entire provident
fund and interest
accrued.
Benevolent fund
grant encashment
upto 10 years
entitlement.
Encashment
entitlements of 10
years of post
retirement ceiling.
Maximum of 180 Maximum 12
days.
months.
Executive get
facilities for 6
months after
retirement as per
entitlements.
18
iii. Rehiring:
The other problem of the VRS is rehiring or the revolving door syndrome,
whereby the employee availing VRS is rehired by the same organization or within the
same sector. If proper human resource assessment and the skills gaps are undertaken
before designing the VRS scheme the risk of rehiring could be minimized. However, in
situation such as where an organization produces valuable services and where the labour
market is tight the dangers of rehiring would be higher, for instance IT personnel, good
bankers in certain South Asian countries. Also, the risk of rehiring is higher in an
organization that is being restructured as opposed to being closed.
Therefore it is essential to undertake detailed human resource audits before
designing the VRS schemes and careful considerations needs to be given to minimize
rehiring risks in an organization that is being restructured. Some of the measures taken in
South Asian banks include banning of reemployment in the same sector/agencies,
undertaking from the employees not to seek reemployment, freezing vacancies created by
staff seeking VRS.
a. Steps taken by South Asian Banks:
In order to avoid the risk of rehiring the Central Bank of Sri Lanka and the public
sector banks in India had the following additional conditions:
a.
b.
c.
d.
e.
An undertaking from the employee availing VRS not to seek re-employment in
the bank or any other institution where the bank has major shareholding.
Banning re-employment in all public sector banks.
Freezing vacancies created by employees availing VRS.
Sanction of VRS and any new recruitment should only be in accordance with the
manpower plan.
Before introducing VRS, banks were required to complete their manpower
planning and identify the number of officers/staffs who could be considered
redundant.
Review of VRS Implemented – Sri Lanka, Pakistan & India
Within the Central Banks, the Central Bank of Sri Lanka and the State Bank of
Pakistan has implemented the scheme. And among public sector banks, the three
nationalized commercial banks in Pakistan and 26 out of 27 public sector banks have
implemented VRS.
Broad Parameters of VRS
i. Number Targeted:
Table 9: Number of Employees targeted for VRS
Existing
number of
employees
Employees
Targeted for
VRS
% Targeted
Central Bank
of Sri Lanka
State Bank of
Pakistan
Public Sector
Banks in India
1,953
7,158
863,117
Nationalized
Commercial
Banks in
Pakistan
50,343
1,009
Na
177,405
25,636
20 %
51 %
52 %
The Central Bank of Sri Lanka and the 3 nationalized commercial banks in Pakistan
targeted staff reduction of about 50 %, while in India it was about 20 %. The State Bank
of Pakistan has been implementing the VRS as an ongoing process and no definite
numbers were set for staff reduction, it aims to continue the process until the skill gaps
have been matched.
In India, the excess staffing figures were based on the Ministry of Finance’s study which
used a benchmark figure of Rs. 12.5 million business per employee. In Sri Lanka and
Pakistan, the figures were based on the restructuring process and management’s
assessment of surplus staff.
ii. Payback Period
The payback period for South Asian banks on an average has been 3-4 years
which is well within the accepted levels. In Sri Lanka it was 36 months, in India it
ranged from 36 to 48 months, and in Pakistan it averaged about 42 months. The internal
rate of return which averages about 25 % is well within the cost of capital which ranges
from about 10-15 % in South Asia.
iii. Tax
The severance pay received through VRS scheme have been exempted from
income tax in Sri Lanka and India - upto Rs. 500,000 (US $ 11,000) was exempted under
VRS approved by the government - making the scheme financially more attractive for
prospective early retirees.
Achievements
i)
Target Number:
Table 10: Achievement of Target
Central Bank
Central Bank
State Bank of
20
Public
NCB
of Sri Lanka
Pakistan
Total Number of
Employees:
Targeted:
1,953
7,158
1,009
Achieved:
% Achieved
697
69 %
No specific
targets.
828
Sector
Banks in
India
863,117
Pakistan
177,405
25,636
101,300
57 %
11,022
43 %
50,343
In Sri Lanka, the first round of VRS was implemented in January 2002 which
achieved 69 % staff reduction from the target of 1,009 employees. The second round,
aimed mainly at security staff excluded in the first round, has been dropped due to other
priorities and also since most of the staff in this group consisting of about 180 are close to
the retirement age.
In Pakistan, the achievements was only 43 % partly due to funding constraints and
higher than planned expenditure per employee. The expected cost per employee was Rs.
1.08 million per employee, however, the actual costs per employee went up to Rs. 1.61
m. Among the three NCBs (National Habib Bank, National Bank of Pakistan and United
Bank Limited) that implemented VRS, two have plans to go for second round of VRS
while one (United Bank Limited) has already been privatized.
In India, the achievement in terms of number of staff reduced in 26 public sector
banks was 57 %. The State Bank of India, largest public sector bank in India, alone
reduced 20,784 employees.
ii)
Staff Profile:
In India, the age profile and professional to assistant ratio did not change much.
After, the VRS 16 % were below 35 years of age, 45 % between 35 and 44 years and 39
% between 45 to 60 years. In terms of officer vis-à-vis support staff ratio, the ratio after
VRS was 24.4 officers to 75.5 support staff against 27.6 to 72.2 before VRS. In Sri
Lanka, the ratio of officers to non-officers increased from 28 % to 32 % and the average
age profile has been reduced as 98 % of the employees availing VRS was 40 years and
above.
iii)
Cost Savings:
In Sri Lanka, besides salary the Central Bank saved about US $ 12,000 per month
in terms of savings in railway/bus season tickets costs, canteen subsidy cost, tea supply
services cost, drinking water costs, telephone call and overtime cost.
In Pakistan, the cost income ratio of HBL was reduced from 83 % in 2000 to 71
% in 2001, NBP’s was reduced from 62 % in 2000 to 52 % 2001 and UBL’s from 70 %
in 2000 to 58 % in 2001. In India implementation of VRS in 2001 resulted in decline in
21
non-interest expenses, particularly the staff costs in 2002. This led to improved cost to
income ratio in range of between 50-55 % in 2002 as compared to 63-69 % the previous
year.
iv)
Improved efficiency:
In Central Bank of Sri Lanka the staff reductions of about 35 % did not affect the
level of services provided by CBSL indicating increase in efficiency levels. Some of the
loss making functions of CBSL are now making profits after they were outsourced to a
private companies (Box 1 Lanka Clear).
Box 1 - LankaClear
One of the most spectacular successes of the implementation of the VRS and the outsourcing of activities
previously carried out by the CBSL has been the privatization/cooperatization of the cheque clearing
function and other payments functions.
The clearing house function of the central bank has been outsourced to a private company – LankaClear
(formally known as Sri Lanka Automated Clearing House, SLACH). LankaClear is owned 20 percent by
the CBSL, 14 percent by People’s Bank, 14 percent by Bank of Ceylon, and 52 percent by the private
banks in Sri Lanka. In the twelve months prior to the privatization of the clearing function (on April 1
2002), this activity was loosing the central bank approximately Rs 6.08 million per annum. In the six
months since privatization, Lanka Clear is making a profit (on a six monthly basis) of Rs16 million – an
increase of Rs.32.18 million on an annualized basis – or Rs. 40 million better than as a department of the
Central Bank of Sri Lanka (approximately US$500,000 per annum).
The clearing services under LankaClear have improved dramatically. Whereas clearing for the previous
day was not completed until 3:00 a.m. or 4:00 a.m. the following day when the function operated within the
CBSL – the clearing is now completely finished by around about 8:00 p.m. each night – five to six hours
earlier than was the case when it was part of the CBSL. This has resulted in further cost savings from
lower electricity and other overhead costs resulting from lower staff times in the offices. There has also
been a re-engineering of the balancing procedure with a reduction in forms required to be filled in from 11
to only 1. Since October 2002 LankaClear has also commenced dollar clearing activities. These efficiency
gains are considerable.
There has been a considerable reduction in staff costs as a result in utilizing cheaper outsourced labor as
well as a significant reduction in overtime paid as a result of the reduced time taken to finalize the clearing.
Hence, this activity, as well as converting a loss into a substantial profit, has also rendered a significantly
improved service to the banking system. In addition, LankaClear offers additional services to the banks for
a fee.
In Pakistan, there was no disruption to the level of services provided in spite of
staff reductions, indicating improved efficiency. In India, while efficiency had improved
in general, some branches encountered problems and delays due to the large number of
employees opting for the VRS. It was reported that in certain branches, the waiting time
for customers had increased, delays in remittance of cash from various branches took
over five days as against 1-2 days in the past.
Comparison of Schemes
22

Methodology: In all banks, the VRS was an outcome of organizational
restructuring with the aim of enhancing efficiency and productivity. The CBSL
involved the employees and consulted the trade unions, government, and the legal
experts, while designing the VRS. Focus groups were established to study the
various aspects of restructuring process including human resource management and
these focus group kept the employees and the unions informed of the process. The
need to change CBSL into a modern, competitive and efficient bank was also
clearly articulated in the Governor of CBSL’s circular to the employees. In
addition, CBSL also reviewed the various other schemes implemented in Sri Lanka
to study the strength and weakness of the scheme. In India, the broader parameters
of the scheme was developed by the Indian Banking Association, approved by the
government and the details of the scheme was completed by the individual banks. A
benchmark of Rs 12.5 m business per employee was used to determine the number
of surplus staff. With this benchmark the excess staff at SBI of around 58,000 was
established. In Pakistan, VRS has been adopted as an ongoing process of staff
rationalization and is expected to be continued till the overstaffing and skill gap
issue are addressed. SBP has also conducted a comprehensive human resource audit
and this would provide a useful input in determining future staff rationalization.

Adverse selection: To avoid productive employees leaving, the banks based on
human resource assessments/audits had designed eligibility and non-eligibility
criteria which encouraged staff with more than 10-15 years of services, 40 years of
age and over, staff at clerical positions/surplus to avail VRS and to prevent
specialized staff required by the bank to leave. In addition, the banks reserved the
rights to accept or reject VRS application.

Compensation package: In order to make VRS successful and acceptable to the
employees, most banks offered attractive compensation package, on an average the
compensation package offered by the South Asian banks ranged from a low of US $
24,000 to a high of US $ 32,000 per employee. While the per employee
compensation package was the highest in Sri Lanka, in terms of the per capita
income it is the lowest. The per employee cost of US $ 24,000 in India is about 51
times more than the country’s per capita, in Pakistan the per employee cost was
about 65 times more than the per capita income while in Sri Lanka it was 38 times
of per capita.
Sri Lanka
32,000
Compensation
per employee
($)
Per
Capita 840
GDP
Compensation/ 38 times
Per
capita
income
India
24,000
Pakistan
28,000
Nepal
7,500
Bangladesh
30,000
470
430
250
380
51 times
65 times
30 times
79 times
23
Cost Per Employee (US $ '000)
35
30
Sri Lanka
India
Pakistan
Bangladesh
Nepal
25
20
15
10
5
0

Rehiring: While most schemes did not have any specified criteria to avoid rehiring
of retired employee by the same organization or the sector, in India and Sri Lanka
provisions were included such as banning of re-employment in public sector banks,
freezing of vacancies created by VRS, and an undertaking from the employees not
to seek re-employment.

Achievements: While none of the banks achieved 100 % result in terms of meeting
targeted staff reduction, the achievement has been satisfactory with actual
achievement ranging from 50 % in Pakistan to 69 % in Sri Lanka. However, in
terms of cost reduction and increased efficiency all banks have been able to reduce
costs income ratio and increase efficiency. In Sri Lanka, in spite of staff reduction
of about 35 % it continued to provide same levels of services as before indicating
efficiency. In Pakistan, all three nationalized commercial banks were able to reach
target cost income ratio of less than 65 % and it also facilitated the privatization of
one of the banks (United Bank Limited). Similarly, in India the cost income ratio
was reduced from about 63-69 % in 2001 to 50-55 % in 2002 though there are
reports of some service disruptions in terms of increased waiting time and
transaction time.

Financing of the Scheme: Most of the severance cost within the banks have been
financed by the donors, largely the World Bank, on cost sharing basis with the host
government. In India, the public sector banks met the cost of VRS through internal
sources and borrowings and this has raised the concerns of diluting shareholders
value. According to JM Morgan Stanley report, for the State Bank of India the
internal rate of return on investment is about 11 % whereas the cost of equity is
significantly higher at about 16 % and this could dilute the shareholders value.
24

Social Issues: Anecdotal evidence suggest that there has been no major social
problems faced by retired employees. The banks that provided/owned education and
health facilities within the organization continue to extend the facilities to staff
opting for VRS, most had found new jobs while some were involved in small
business. In Bangladesh, a tracer study is planned to review the social impact of
VRS on Adamjee Jute Mills workers and the Bangladesh Bank (Central Bank of
Bangladesh) proposes to establish a Counseling and Tracking Cell within the bank
to provide counseling to those staff opting for VRS and to track the progress of a
small sample of about 12 retirees.
VRS Planned – Bangladesh & Nepal
The Bangladesh Bank - the Central Bank of Bangladesh, the Nepal Rastra Bank – Central
Bank of Nepal, and the two public sector commercial banks the Nepal Bank Limited and
Rastriya Banijya Bank have plans to implement the VRS.
i. Bangladesh Bank
As a part of restructuring exercise, the Bangladesh Bank plans to reduce staff numbers by
about 1,250 from the current strength of 5,718 (Officers 4420 and non-officers 1298 –
while the ratio of officers to non-officers is highest in Bangladesh compared to other
South Asian banks, large number of these officers have been promoted from clerical
levels). The main purpose of VRS in Bangladesh Bank is to reduce inefficient and
unproductive staff, particularly those who have been promoted from clerical levels to
officers grade, and to bring in new skills and productive employees. The existing staff
profile indicate about 60 % of the staff above the age of 45 years and close to 55 % with
20 or more years of services. Therefore, VRS is targeted at those staff 40 years of age or
more and with more than 10 years of services. The compensation package and other
benefits are as follows:
Severance compensation:
i. Three months basic pay in lieu of notice.
ii. Approved accumulated leave up to a maximum of 12 months basic pay.
Pension/Gratuity:
i. Calculated at 80 % of current basic salary, commuted at existing rate of Tk. 200 and
Tk. 117 for the first half and second half of total pension.
ii. For staff that opted to remain under the gratuity scheme, the package comprises of
two months pay for every completed year of service.
Housing Loan:
Adjusted against VRS compensation and balance written off.
Provident Fund:
Entire provident fund balance comprising of the individual staff contributions @ 10 %
of salary and all interest accrued to date.
Leave encashment:
Maximum of 12 months
25
The total cost of the scheme is around Taka 2,198 m (US $ 38 m) or per employee cost of
about Taka 1.7 m or US $ 30,000. However, the actual cash component of the scheme is
Taka 102 m or US $ 1.7 m and the rest would be book adjustment and writing-off of
outstanding housing loan amounting to Taka 2,096 m or US $ 36 m. The payback period
of the scheme is expected to be one and half years. The Bangladesh Bank has its own
schools, a staff welfare fund and medical facilities and these benefits would be extended
to the retired staff and their families to reduce social hardship.
ii. Nepal
The VRS scheme in Nepal is yet to be finalized. However, plans are underway to
implement VRS in the Nepal Rastra Bank (Central Bank of Nepal) and the two
commercial banks Nepal Bank Limited and Rastriya Banijya Bank.
Nepal Rastra Bank: In 2001, 180 staff members availed VRS against targeted number of
300, resulting in a salary savings of Rs. 50 m in 2001-03 fiscal year. The number of staff
who applied for VRS was less than anticipated as the compensation package offered was not attractive to those staff completing more than 30 years. Therefore, another round
of VRS is planned to reduce excess staff, particularly at clerical levels. The aim is to
reduce staff by about 400 (50 officers and 350 clerical) from the present levels of 2,163
(officers 405 and assistants 1758). Initial costing by NRB for implementing VRS to about
400 staff indicate an amount of Rs. 125 m or per employee cost of Rs. 312,000 (US $
4,000).
Nepal Bank Limited: NBL has a staff strength of 5,322. NBL proposes to reduce staff
numbers by 2,592 (48 % reduction), majority at lower levels – Senior Record Keeper,
Senior Peons and Clerks. The total cost of the VRS is expected to be around US $ 19.4 m
or per employee cost of US $ 7,467. The scheme is open to those staff with 15 or more
years of services. Preliminary estimates indicate annual savings of about US $ 4.5 m,
mainly through salary savings, after VRS resulting in payback period of less than 4.5
years. Should VRS not be very successful, NBL proposes to implement compulsory
retirement to reduce staff numbers.
Rastriya Banijya Bank: RBB has a staff strength of 5,522 out of which 2,322 staff (42 %)
are targeted for VRS. The estimated cost of the scheme is US $ 19.2 m with per
employee costs of US $ 6,282. RBB plans to implement the scheme in two phases –
Phase I for employees with 20 years or more of services and Phase II for those with 15 –
19 years of services.
iii. Bank of Ceylon
The State run Bank of Ceylon proposes to offer VRS to those staff 50 years or more and
with more than 20 years of services, currently estimated to be around 30 % of the total
staff strength. The selected early retirees would be eligible for pension and provident
funds benefits when they reach the retirement age of 55 years. The bank though skeptical
about the success of the scheme is offering it in response to requests from the unions to
26
allow employees with family commitments to leave early without losing their pension
rights.
Suggested Framework for VRS

Part of the overall reform process: VRS alone will not alleviate the problems of
poor performance and inefficiency, other reforms in terms of strengthening the
regulatory and supervisory framework, computerization, strong management and
improved human resource management policies needs to take place simultaneously
for VRS to be effective. VRS should be implemented as part of the overall reform
process unless the organization is being closed.

Consultative process: In order to ensure ownership and support from all
stakeholders including employees and the unions, and to ensure that it is within the
legal framework of the country, the designing of the scheme should be carried out
in a consultative process. The employees should be made aware of the changes and
the rationale for the change to avoid resistance at a later stage.

Target: The human resource management plans should be in place and surplus
workers identified and “ghost workers” eliminated before initiating VRS to reduce
the cost of VRS. Indications are that there are people who are paid by the banks but
work for the unions – these should be addressed appropriately. The eligibility
should target surplus workers identified and non-eligibility criteria should be well
defined to avoid productive employees leaving. An additional clause, reserving the
right of the management to accept or reject VRS application would strengthen
adverse selection.

Compensation: The compensation package needs to be attractive to induce
workers to leave on a voluntarily basis while at the same time ensuring that it is not
excessive. Alternatives such as “gardening leave” whereby the employee continues
to receive salary without actually working should be explored - especially among
those employees close to retirement age.
The payment of severance package should be on a timely basis. In Bangladesh,
delayed severance payment has been a major issue, particularly when payments
were done through the unions, which has made retrenchment even more difficult
because of uncertainties related to payments, besides job loss.

Rehiring: Sufficient provisions should be built into the scheme to avoid rehiring of
retired employee by the same organization such as abolishing a vacancies created
by employee availing VRS, undertaking from employees not to seek reemployment, banning of employment in the same organization or sector etc.

Political/legal issues: The political and legal sensitivities needs to be considered
while designing the scheme. The prevailing laws, rules and regulations and
practices of the host country should be taken into considered.
27

Social issues: In South Asia, the social impacts of the VRS is expected to be greater
because of lack of social safety nets. The dangers of severed employees being
rendered homeless, without medical/education facilities is imminent because
usually these benefits are tied to their job. Along with the job these facilities are
withdrawn which could possibly lead to social hardships. It is also possible that
finding a new job could be difficult as the private sector in most South Asian
countries is still small and underdeveloped. Other problems likely to be encountered
are management/investments of severance compensation due to lack of experiences.
Therefore, counseling/retraining should be provided to the affected workers.
Training on booking keeping, investments, starting small business etc would be
useful to ensure sound investment of severance pay, though in certain countries
retraining have not been very successful because of the time required to organize
such training and lack of interest from retrenched employees. In such case, it is
recommended to provide retraining allowance directly to the employee with which
the employee could seek training program most suited to them on their own.
Conclusion
VRS was adopted quite recently by most South Asian banks as a result it is still
early to evaluate the impact it has had on the institutions. However, initial indications
are that cost to income ratios have improved across banks and the level of services
provided are being maintained in spite of staff reductions indicating improved
efficiency. One of the public sector banks in Pakistan has been privatized after
implementing VRS. Most banks have also put in place or are in process of putting in
place revised human resource management policies based on meritocracy. The
recruitment policies are being revised to allow direct recruitment and give more
authority to the management to hire and fire people. For instance, in India the Banking
Services Recruitment Boards, central recruitment agency for all public sector banks,
have been abolished to give autonomy to the individual banks to recruit their
employees. The salary structures are being revised to bring it at par/or close to the
private sector salaries.
28
ANNEXURE 1
Schemes:
State Bank of Pakistan
SBP plans to implement VRS as an ongoing process of staff rationalization, therefore
no specific targets.
Compensation package:
- Option to avail post retirement medical benefits or medical entitlement
encashment equivalent to 10 months salary.
- Option to get the benevolent fund grant amount on monthly basis or in lumpsum
for 10 years.
- Encashment of leave balance in “special” and “regular” leave accounts on the
date of exercising the options upto a maximum of 730 days.
- Encashment would include monetized salary of the employee plus fringe benefits
like telephone charges, petrol ceiling and driver’s salary (as admissible under the
rules on the date of the option). Actual encashment would be limited to the period
of the employees remaining service upto 60 years.
- OG 4 allowed lumpsum payment on account of post retirement benefits for a
period of 6 months.
- A silver medal and a wrist watch or prize bonds worth Rs. 10,000.
Habib Bank Limited, Pakistan
Compensation package:
- 2.75 months basic pay for each completed year of service or 1.25 months basic
pay for each remaining months of service whichever is less, subject to maximum
of 90 months basic pay.
- Medical entitlement encashment – 10 years of post retirement ceiling.
- Benevolent fund grant encashment – 10 years entitlement.
- Leave encashment upto 180 days maximum.
- Pension commutation for staff with less than 25 years of services.
- Executive to get facilities for 6 months after retirement as per entitlements.
National Bank of Pakistan
Compensation package:
- 2 months basic salary for each completed year of service for staff with more than
25 years of service; 3 months salary for each completed year of services for staff
with less than 25 years of services; and 6 months salary for each completed year
of services for staff with 6 or less years of services as well as for staff below
graduate level.
29
-
Medical entitlement encashment – 10 years for services of more than 25 years; 5
years for services of less than 25 years.
Leave encashment upto 180 days maximum
50 % pension commutation in cash with the remaining 50 % offered exgratia.
Provident fund contribution paid back with interest.
Executives to get facilities given to permanent employees at retirement.
United Bank Limited, Pakistan
Compensation package:
- 3 months basic salary for each completed year of service or 1.5 months basis pay
for each remaining months of services, subject to maximum of 90 months basic
pay. For OG3: 5.5 years gross salary plus Rs. 50,000 bonus for services of more
than 20 years; 6 years gross salary plus Rs. 50,000 bonus for services of less than
20 years. For clerical staff: 6 years gross salary plus Rs. 100,000 bonus.
- Medical entitlement encashment – 10 years paid in lumpsum.
- Benevolent fund grant encashment – 10 years entitlement paid in lumpsum.
- Leave encashment 50 % of the total upto 180 days maximum
- 50 % pension commutation in cash with the remaining 50 % offered exgratia.
- Provident fund and gratuity
- Executives to get facilities for 6 months after retirement as per entitlement.
Central Bank of Sri Lanka
1 Target Group
Number of Staff
Staff Officer
Non-Staff Officers
Minor Employees
Total Staff
550
1,094
309
1,953
Expected
Applicants
200
500
309
1,009
VRS Average Age
47 years
47 years
43 years
47 years
The scheme is eligible to all employees 40 years or more with a minimum of 10 years
services, minor employees in permanent service and employees attached to certain
departments. The very senior management of the Bank, staff class officers with
PH.D/Masters degree where the acquisition of such qualifications has either been funded
or sponsored by the CBSL or those recruited on the basis of such qualification, security
officers, and those employed under specific contracts or those with pending disciplinary
actions are excluded from the scheme.
2 Eligibility & Non-eligibility Criteria
Eligibility:
30
i.
All employees in the permanent service in the Staff class, non-staff class and
Minor employee with a minimum of 10 years service in bank and who are 40
years or more as on 31/12/2001.
ii. Minor employees in permanent service as on 31/12/2001 not specified in (i.).
iii. All employees in permanent service attached to Sri Lanka Automated Clearing
House, Vehicle Repair Garage, Canteen and Medical Clinic, irrespective of age,
service period, class, grade as on 1/10/2001.
Non-eligibility:
i.
Very senior management of the bank (Deputy Governors, Executive Directors,
Assistant to the Governor, Head of Departments and Additional Head of
Departments;
ii. Staff Class officers with Ph.D/Masters degree where acquisition of such
qualification was funded or sponsored by the bank or those recruited on the basis
of such qualifications.
iii. Who have been recruited to the Staff class on the basis of one or more of the
following special qualifications:
- Final examinations or an Associate Membership of the Institute of Chartered
Accountancy of Sri Lanka, or Chartered Institute of Management of UK
- Attorney at law & Graduate in Law
- Graduate in Computer Science and/or Information Technology.
iv. Employees under contract for finite period.
v. Employees against whom disciplinary action is being contemplated or is pending
or are under interdiction.
vi. Security officers.
3 Compensation Package
All employees aged 40 and above with minimum 10 years service
subject to maximum of current monthly gross salary x number of
months remaining service upto 60 years of age:
Service compensation
iii. 1 months gross salary for each year of past services.
iv. 2 months gross salary for each year of remaining services upto 60
years of age.
Pension Payments
i. 25 years or more: 90 % of current pensionable salary and nondeductible commuted pension.
ii. Less than 25 years: pro-rated reduction of pension from 89-75 %
upto 10 years of service @ 1 % point for each year below 25 years
and deductible commuted pension.
iii. House loan repayment as per terms applicable to bank employees
iv. Medical benefits same as for pensioners.
v. Provident fund balance subject to deductions.
Minor Employees below 40 years and less that 10 years and those not
eligible for pension subject to maximum of current monthly gross
salary x number of months remaining service upto 60 years of age:
31
Service compensation
i.
3 months gross salary for each year of past services.
ii. 2 months gross salary for each year of remaining services upto 60
years of age.
iii. Gratuity as per gratuity act
iv. Provident fund subject to deductions.
State Bank of India
Eligibility:
i.
All permanent employees with 15 years of service or 40 years or
more.
Non-eligibility:
i.
Specialist officer/employees who have executed service bonds &
have not completed it, employees serving abroad under special
arrangements/bonds. The directors may however waive this,
subject to fulfillment of the bond and other requirements.
ii. Employees against whom disciplinary proceedings are
contemplated/pending or are under suspension.
iii. Employees appointed on contract basis.
iv. Any other categories of employees as may be specified by the
Board.
Service compensation
1. 60 days salary (plus stagnation increments plus special
allowance plus dearness relief) for each completed year of
service or the salary for the remaining number of months service
left whichever is less.
2. Gratuity as per Gratuity Act/Service Act
3. Pension including commuted value of pension, banks
contribution towards provident fund as the case maybe,
4. Leave encashment as per rules.
Other features considered in designing the scheme : The management has the
right to accept or reject VRS.
Payment Scheme: Banks had the choice of paying partly in cash and partly in
bonds or in installments, but minimum 50 % was to be paid in cash immediately and
remaining 50 % within the time stipulated. SBI opted for cash payment option.
Nepal Bank Limited (Planned)
1 Target Group
32
According to the draft retrenchment plan (December 11, 2002), NBL proposes to retrench
2,750 employees as follows:
Number of Staff
Compulsory Retirement: employees
completing 25 years of service (489
officers and 688 assistant)
Voluntary Retirement
Officers completing 20-25 years of
service
Assistant completing 15-25 years. 50 %
assumed
Total Staff
1,177
Expected
Applicants
1,177
179
50
3,046
1,523
2,750
2 Compensation Package
Compensation
for
Past
0.75 months salary for each year of past services
service
Compulsory Retirement
1 months salary for each year of past services
Voluntary
Monthly Pension
Permanent employees completing 20 years are eligible
Gratuity
Eligible for employees completing 5 years or more of
service. Rate depends on service period.
Payment for accumulated As per leave balance
leave
A tentative budget of $ 26.91 m is proposed for the above scheme.
Bangladesh Bank (Planned)
Cash compensation
ii. Three months basic pay in lieu of notice.
iii. Approved accumulated leave up to a maximum of 12 months
basic pay.
Benefits adjusted against outstanding loans
vi.
Entire pension calculated at 80 % of current basic salary,
commuted at existing rate of Tk. 200 and Tk. 117 for the first half
and second half of total pension.
vii.
Entire provident fund balance comprising of the individual
staff contributions @ 10 % of salary and all interest accrued to
date.
viii.
For staff that opted to remain under the gratuity scheme, the
package comprises of two months pay for every completed year
of service.
33