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Human Resource Issues at Regional Rural Banks

Dealing with human resource issues is the key to making the regional rural banks fulfil their original mandate of serving the rural poor.

Human Resource Issues at Regional Rural Banks

Dealing with human resource issues is the key to makingthe regional rural banks fulfil their original mandate of

serving the rural poor.

DINKAR RAO

I
t is now 30 years since the first regional rural bank (RRB) was opened in the country. There are now 196 RRBs with 14,446 branches covering 518 districts. As of March 2004 they had mobilised Rs 56,350 crore of deposits with Rs 26,114 crore of outstanding advances and employed 59,251 personnel. The credit deposit ratio of these banks stood at 46.11 per cent. Thus, the RRBs have today become an inseparable part of the economic life of people in rural India. Owing to the rapid changes that have taken place in the financial sector since the early 1990s, growing diversity in demand and supply in the rural sector, marketing variations and customers’ preferences, technology and resultant policy initiatives, there has been a shift in the approach and functions of the RRBs from what was envisaged at the time of their establishment. These changes can be summarised as follows: (1) Initially, the salaries of the officers and employees of RRBs were equated with the comparable pay scale of their counterpart in the state government. Admissibility of the National Industrial Tribunal (NIT) award (1990) which stipulated equation of the salary of staff of RRBs with the staff of the sponsor banks has diluted the concept of the low cost profile of the RRBs. (2) As an effort to make the RRBs selfsupporting, the RRBs were permitted to finance the non-farm sector and later the non-target group to an extent of 40 per cent and subsequently 60 per cent. The RRBs are almost at par with the commercial banks insofar as lending to priority/nonpriority sectors are concerned. (3) In consonance with the government/RBI policy of deregularisation of interest, the RRBs have been permitted to determine their own interest rate structure. (4) RRBs have been permitted for non-SLR investments almost at par with their sponsor banks. (This has made a few RRBs dependent on the investment profits.) (5) RRBs have been advised to follow prudential

norms relating to income recognition, asset classification and provisioning at par with the sponsor banks. (6) RRBs have been advised to maintain their SLR investments in approved trustee securities like the commercial banks. (7) The responsibility of providing administrative guidance to the RRBs was assigned to the sponsor banks by the government of India.

Initially, the RRBs were permitted to entertain credit requests from small and marginal farmers and from persons of small means. Under the service area approach, it was envisaged that the RRBs would provide financial assistance to its target group and the remaining villagers would be covered by the commercial banks in the adopted villages. Later, the RRBs were permitted to enlarge their coverage both in terms of size of business and the amount of assistance. Thus, the complementary role of the RRBs envisaged earlier became competitive in due course of time. The RRBs now have their own products and pricing system and are not dependent on the sponsor banks in conducting their operations.

Against the backdrop of the above changes this article analyses the development aspects of human resources in the RRBs with the aim of making the system efficient, cost effective and sustainable for meeting future challenges and reaping the vast opportunities available in rural India.

Governance Issues

The RRBs are capitalised and owned by the government of India (50 per cent), state government (15 per cent) and the sponsor bank (35 per cent). This multiple ownership of the RRBs has led to a range of problems relating to governance. As per the RRB Act, 1976 there are four directors (two official and two non-official directors) representing the government of India, two directors (official) representing the sponsor bank, two directors (official) representing thestate government and one each from RBI and NABARD are nominated on the board of the RRB. The act provides that powers of general superintendence, direction and management of affairs and business of a RRB shall vest in a board of directors. In order to ensure that the board of directors takes strategic decisions on various business matters and exercise proper monitoring and supervision controls on the functioning of RRBs, there is a need for legal and institutional changes relating to governance issues.

Manpower Planning

Though the Narasimham Committee (1975) had recommended setting up of an alternative credit delivery system to alleviate the miseries of rural people suffered from the informal system of moneylending, the advent of the RRBs was a sudden development. First five RRBs were sponsored and inaugurated on October 2, 1975 by the commercial banks. The sponsor banks were asked to support and guide the establishment and operations of RRBs. Hence, the branches and head office of the RRBs were run by the deputed staff from sponsor banks to begin with. In short, the system was a replica of the sponsor bank. Subsequently, the government of India permitted the RRBs to go in for recruitment. The staffing pattern was similar to that of sponsor banks, i e, the cadres of officers and employees (the officers as managerial and employees as supporting staff). In order to have a local bias it was stipulated that the officers can be recruited from the state in which the RRB operates and the employees from the operational area of the RRB. The salary/pay structure was equated with the comparable cadre of the state government employees. In the present system the chairman and general managers of RRBs are executives deputed by sponsor banks and other staff members are on the roll of the RRBs.

Since 1992 the recruitment in RRBs has been banned. It has had a crippling effect on RRBs, rendering them incapable of fulfilling their original mandate [Shetty 2004]. Nearly three decades of functioning of the RRBs has given rise to a number of problems, which need to be addressed immediately. Greying of its personnel is one such problem which, if not handled immediately, will leave a vacuum in manpower planning, since the period spent on orienting a new entrant to manage a branch/office is itself substantial.

The RRBs have grown in size. The business of a few RRBs is more than the business of a few commercial banks at the

Economic and Political Weekly March 18, 2006 time of their nationalisation. There are centres where the RRB branch has more business than that of the branch of their sponsor bank. In such a situation the regulators have to revisit the issue of the staffing pattern and its deployment. The norm of the government for manpower placement in RRBs, i e, an average per unit staff strength should not exceed four, becomes redundant in such a context. Though the central government has recently relaxed the ban on the recruitment, no action seems to have been initiated by many RRBs, owing to the move of the government to consolidate these institutions. The intermittent decision taken earlier to grant permission for movement of staff from surplus to deficit RRBs has served only a limited purpose.

Manpower planning exercise carried at the head office of the bank should be linked with the productivity and profitability of the RRB concerned. The human resources have to be converted into assets compatible with business strategies. Optimisation of human resources should be made on regular basis taking into account business projections, technological upgradation, exposure to new services/products, market changes and responses and the expectation of the regulators/shareholders, etc. Similarly, rationalisation of organisational and administrative set-up may also be taken up periodically. Overall, the entire exercise of manpower planning, besides optimising the human resources, should achieve a balanced age and skill profile with the aim of improving productivity and profitability of the institution.

Recruitment, Placement and Transfers

Initially, the branches of RRBs were manned by the staff deputed from the sponsor bank. Later, the government permitted RRBs to recruit their own officers and employees. After creation of the Banking Services Recruitment Board (BSRB), the job of recruitment was entrusted to the board till 1992 (when further recruitment was banned). The government has recently lifted the ban on recruitment and since BSRB has abandoned its functions in July, 2001, the job of recruitment has to be carried out by the concerned grameen bank under the guidance of the sponsor bank. It is suggested that a recruitment cell for recruiting RRB staff is set up at the level of sponsor bank (wherever the bank has sponsored more than five RRBs) on the pattern of the BSRB. This will not be only a cost-effective measure but also bring uniformity and enhance transparency in the process.

In order to maintain the rural business character of RRBs as also to involve the staff in the entire process of rural development, a few changes in the recruitment process can be introduced. Merely locating the branches in rural area is not enough. The staff members have to stay at the place of their posting. Unless they do so they will not be able to have a feel of the area and appreciate local problems. This is the main reason why the rural branches of commercial banks and RRBs are not able to play their developmental role effectively. This problem can be tackled in two ways. First, the selection process should ensure entry of candidates with rural aptitude and bias and not on merit alone and second, the systems and accounting procedures in branch working are revised /modified to enable the branch staff to contact existing and potential customers by moving out of the branch.

At present there are three grades of officers in RRBs. Accordingly, the branches are placed in three categories depending on the level of their business for the purpose of posting. The branch head who is an officer is supported by a second officer and other employees wherever necessary. At administrative offices, i e, head office and area offices, senior officers are posted. They are also supported by officers and employees, which include typists. The executives deputed by the sponsor bank are posted at the head office of the bank as chairmen and GMs. The business of RRBs has swelled over a period of time. There are RRB branches having more than Rs 50 crore business with further potential to grow. Management of such branches requires high calibre and managerial skills. Therefore, there is a need to create higher cadre through the promotion process. This should be a regular and continuous exercise to meet administrative requirement of the organisation.

Wage Structure

The government of India initially equated the salary structure of the officers and employees of the RRBs with the comparable level of the government employees of the state in which it is located. Later, the staff of RRBs sought the intervention of the Supreme Court in the matter of equating their wages with those of sponsor banks on the principle of “parity of pay”. On the direction of the court, the government of India constituted a national industrial tribunal to

Economic and Political Weekly March 18, 2006

examine the issue. On the recommendations of NIT the wages of RRB staff have been equated with the comparable employee cadres of the sponsor bank.

The working group headed by M V S Chalapathy Rao also examined the issue of wage structure of RRB staff. The committee recommended that the decision to determine the wage structure of RRB staff should be vested in the board of directors of the respective RRB, which in consultation with the sponsoring institution should approve the wage structure having due regards to the standard norms relating to the work performance, financial position, paying capacity and sustainability of the concerned RRB. Though this could have been an ideal solution, but the disparity in wage structure amongst the RRBs may again lead to certain legal complications. Now, when the move to merge/ consolidate the RRBs is round the corner the issue of wage structure can be examined afresh.

There are certain basic issues, which need to be kept in mind while determining the wage structure of RRB staff. First, the question of parity of wages in terms of the judgment of Supreme Court has to be kept in mind. Second, the impact of wage revision on the financial health of RRB has to be examined. Though the wage revision downward may not be possible the revision upward needs to be linked with the income and efficiency of the bank. Third, in view of the changes happening in the financial sector, the relevancy of RRBs to have differential wage structure in order to induct/retain talents necessitated to meet future business challenge has to be studied.

Career Progression

The present system of career progression suffers from certain anomalies. There is no well-defined career path for all cadres of RRB staff. The clerks can expect a rise and so too the officers but there is roadblock for them beyond scale III. The experience of nearly three decades gained by the first batch of officers recruited by the RRBs should be treated as sufficient for officers to share a higher responsibility. Imposition of higher scale officers from sponsor banks for the purpose of administration has created a divide, affecting morale. Therefore, a well spelt out career path for RRB staff up to the level of chairman will meet the aspirations of the employees and improve the efficacy of the system.

Employee Education, Training and Development

The employee is required to be oriented with the requisite knowledge about the institution, its system and procedures, products and services, etc, after his recruitment. At present the RRBs either seek the assistance of their sponsor banks or expose the employees to orientation programmes through their in-house programmes. There is no system for second assessment of employees’ suitability based on the feedback received from such programmes. In the context of the specific role to be played by the employees in their area of operation as also our experience with the existing staff, it is a moot question whether a second assessment of employees should be done or not, before their induction. If we expect RRBs to deliver the goods for which they are established, serious thinking needs to be given to this issue.

Developing competencies and the personality of the staff members to meet the organisational needs arising out of technical, legislative and knowledge in the fast changing banking scenario should be made a continuous process. Initially, the staff training colleges of sponsor banks had provided training facilities to the staff of RRBs. Subsequently, a few RRBs jointly established their own training colleges (where the sponsor bank is common) while the others continued using sponsor bank’s training system. The Bankers Institute of Rural Development (BIRD) was established by NABARD to take care of training needs of RRBs and cooperative banks. They also organise specialised training programmes for the staff members mostly limited to the officer employees. The regional training colleges of NABARD at Mangalore and Bolpur also provide training facilities. Besides, the RRBs also depute their officers to the College of Agricultural Banking and other external training institutes for external training. The working group headed by M V S Chalapathi Rao (2001) observed that the arrangements for training and development of the staff of RRBs are not adequate and suggested that “there is an intense need for coordination in the efforts of all these institutions particularly in regard to the training need analyses, training strategies and methodologies, trainer’s training, development of training material, costing and funding of training programmes and mutual sharing of experiences in order to optimise the cost of training to the RRBs while enhancing the efficacy of the training programmes being conducted by them”.

The rural clientele of RRBs need specialised services particularly in respect of technology dissemination in the field of their economic activities. Therefore, the rural bank staff have to be specifically trained in the rural extension services besides other aspects of banking.

The diagnosis of the subject/area to be identified for imparting training is a complex job to be done considering the need of staff and the customers. There has to be regular upgradation of course contents/ introduction of new areas owing to the change in the technology, introduction of new products and customer’s preferences, etc. Another issue, which is to be addressed here, is the utilisation of the skills of trained manpower. RRBs must ensure that the trained employee is utilised for the specific purpose.

The effectiveness of the training programmes should be evaluated regularly to ensure that it is not only cost effective, meets the need of the organisation but also respond to the changes in the internal and external atmosphere. Accordingly, necessary modifications/ improvements should be brought into and the priorities redefined on a continuous basis.

It is right time that the board of RRBs is provided with HR autonomy so that lateral entry of staff on differential pay/ contract basis in specialised areas is made. Such relaxation will also enable RRBs to retain and recruit talent in the system.

Industrial Relations

Industrial relations in RRBs are not fully formalised as a result of which the RRBs face multiple problems. Militant and multiplicity of trade unions lack direction and have made relations more complex. These relations between and amongst the employees (both formal and informal groups), employers, stakeholders and independent agencies (advisory and conciliatory) are still in a formative stage and are not fully developed. Besides, a lack of appreciation of the problems and issues have resulted in the incidence of gheraos, dharnas and strikes affecting RRBs’ functioning. There are mainly two

Economic and Political Weekly March 18, 2006 issues, viz, substantive and procedural, which build and affect the industrial relations. These are discussed in detail below:

The substantive issues involve matters pertaining to wages and service conditions. Since these pertain to macro level issues having application on an entire system, the decision on these issues rests with the NABARD and government of India. RRBs have little role to play on these issues. However, whenever any individual or union raises such issues, the same is to be referred to the NABARD/government of India through the sponsor banks. Even, the board of RRBs is not empowered to take any decision on wage and service conditions, as a result of which the RRBs are always at the receiving end, bringing pressure on them through agitations or strikes affect them adversely. In the past there have been many strikes/agitations on such policy matters. In a few RRBs the staff have developed tendency to drag the banks to law courts. This situation has developed mainly on two counts. First, there exists variation on the implementation of service conditions and allowance, etc, from one RRB sponsored by one bank to another RRB sponsored by another bank and, second, there is absence of conflict resolution mechanism at the level of each RRB. It is, therefore, suggested that the board of the RRBs in consultation with the sponsor bank be empowered to take decision on such service conditions under the broad policy parameters. Further, a committee to redress the grievances of the staff members can be set up by statute so that most of the service related and other matters can be placed before it, to avoid minor conflicts between employees and management. To that effect if required, the Regional Rural Bank Act can be amended suitably.

The RRBs are covered under the provisions of the Industrial Disputes Act, 1947. The employees as individual or as group can approach the industrial tribunal (CGIT) for resolving disputes. In the event of industrial unrest or strike/dharna conciliation can be taken up by the regional labour commissioner (RLC) for appeal as a preventive measure. To make the process effective necessary changes in ID ACT need to be carried out.

The RRBs are highly vulnerable to the problems of industrial relations. Of late, in some RRBs the industrial atmosphere has been vitiated owing to external factors. In order to enlist support for their agitational programmes and activities they sometimes bring in outside influence. There are instances when those outsiders have resorted to all kinds of unethical tactics by misguiding the workforce. One of the reasons for this situation is the delay in providing a solution on staff related problems. There is no forum where the RRB chairmen mutually can take up, discuss and come to a consensus for implementing contentious and other issues of common interest. A forum on the pattern of the IBA is suggested exclusively for the RRBs.

Amalgamation of RRBs

Owing to the gradual deterioration in the performance of RRBs, many of them suffered losses during the 1980s. The

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Economic and Political Weekly March 18, 2006

central government had to intervene and provide budgetary support for capital infusion in RRBs in 1994-95. Out of 196 RRBs, 187 were provided with recapitalisation support. This support, however, was partial and could not ensure their viability in the long run. As on March 2003 there were still 95 banks with accumulated losses and 40 with current losses. Further, in many cases the improvement in the profitability of the RRBs was mainly contributed by their investment portfolio and not through lending operations. A few RRBs experienced resource crunch and their credit-deposit ratio declined. The government has already made it clear that it would not be possible for them to recapitalise weaker RRBs again.

Against the backdrop of the above and to make the RRBs to achieve economies of scale and size, to increase profitability to make them self sufficient and to cater to the requirement of their operational area, the Chalapathi Rao Committee recommended restructuring of the RRBs. Various options have been examined and accordingly the necessary incorporation/amendments on amalgamation of RRBs in the Regional Rural Bank Act, 1975 have been carried out. The sponsor banks are already on the job of amalgamation process of RRBs.

The issues which will dominate the entire process of amalgamation amongst others will be concerning human resources. Though there will not be much cross cultural and operational issues in amalgamating the RRBs sponsored by the same bank, there will be different perceptions on the issue of amalgamation amongst the process workers. To take care of any misconception on the issue of amalgamation, frank and timely briefing/ communication with the staff members, will be necessary in the beginning itself. The organisational capability in the changed scenario has also to be assessed and a suitable change in the organisational structure carried out. The existing administration in RRBs is of three tiers, i e, branch, area offices and the head office. Since the RRBs are required to participate in the development process of its area of operation and the district being a unit for planning and implementation of the programmes and activities, there will be a need to have an administrative office at the district headquarters to streamline the decision-making and performance management systems. Amalgamation of more than one RRB would mean integrating power pyramids into a single pyramid, which may lead to certain governance problems. Preparatory work is required to be done on the issue to nip the bud at the initial stage. The point whether chairman/ general managers should be brought from within, sponsor bank or outside needs deliberations.

Assimilation of people related issues in the post amalgamation period would be challenging. Since, depending upon the pace of business growth and other geographical and local factors, individual RRBs have implemented a career progression strategy for their staff members, the disparities therein, if any have to be reengineered considering their age group and seniority. Utilisation/deployment of surplus manpower owing to amalgamation has also to be planned.

Conclusion

The RRBs as an instrument of credit delivery failed to live up to the promise that their creation had created. This was basically on account of three factors:

(a) The business model on which the RRBs were created remained almost a replication of a typical commercial bank both in approach and practice. As such, the RRBs could not customise their products and processes to the unique needs of their target group. (b) The modelling on commercial bank lines also meant that the RRB staff started nursing a self-image that they are “poor cousins” of their sponsor bank employees, who have strived to attain commercial bank standards in compensation and benefits. This resulted in rigidities in the cost structures of RRBs, negating the natural advantage of low overheads that they were expected to enjoy. (c) In trying to emulate the functioning of commercial banks, RRBs diversified their business lines to areas which had no direct relevance to their original mandate. This dissipated their energies and distracted them from their core objective of bringing affordable credit within the reach of the target group.

In the final analysis, the crux of the problem experienced in implementing the RRB system centres around HR issues. Had the HR issues blended with a suitable “cultural fit” of human resources been addressed before conceptualising the formation of RRBs, the system would have delivered the goods. “Cultural fit” here means that individuals drafted to work for a specific purpose need to have the requisite orientation. An individual who is recruited on pure academic and other credentials without any regard for the cultural fit never really settles down in a career that involves spending the best part of one’s working life in a difficult rural milieu deprived of basic amenities. A few south-eastern Asian countries realising the importance of introducing requisite culture (ethics and values) in the process have achieved amazing success rate. “Look East Policy” of Malaysia is a befitting example worth emulating in the process of institution building. This policy initiated as early as in 1982 has paid rich dividends in implementing the government’s policies and programmes. They realised that only talents and skills do not bring desired results unless the process workers exhibit required ethics, loyalty, dedication, priorities, determination, team work and sacrifice. Therefore, sincere and dedicated efforts are needed to address HR issues concerning process workers and management in RRBs to improve the efficacy of the institution as also to make it an effective instrument of credit delivery to millions of people who do not have access to institutional credit.

EPW
References

[Views expressed in the paper are personal and not of the organisation to which he belongs.]

Planning Commission, Tenth Five-Year Plan,

Vols I, II and III. Regional Rural Banks Act (1976): (as amended) Report of the Expert Group on RRBs under the

chairmanship of N K Thingalaya, 1993. Shetty, S L (2004): ‘Regional Sectoral and Functional Distribution of Bank Credit’. Report of the Working Group on RRBs under

the chairmanship of M V S Chalapathy Rao,

2001.

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