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INTERNAL ASSIGNMENT Name of the candidate : Rajesh Kumar Enrollment no. : 07315903911 Course : MBA-II Section : A Batch : 2011-2013 Subject : Human Resource Management Subject code : MS-112 Topic of assignment : VRS Policy and Its Effects Subject Teachers name : Ms Meenakshi Singh

CERTIFICATE OF MERIT
This is to certify that HRM Project Assignment entitled VRS policy and its effects submitted to Rukmini Devi Institute of Advanced Studies. Its original work carried out by Rajesh Kumar under the guidance of Ms. Meenakshi Singh. Signature of Guide Ms. Meenakshi Singh (Guide) Student name : Rajesh Kumar Enrollment no-07315903911 MBA-II Sec-A (RDIAS)

TABLE OF CONTENTS S.No. Contents 1 2 3 4 5 6 7 8 9 10 11 12

Article Name Introduction Abstract VRS in SBI VRS Features Scope Impact Analysis & Interpretation Findings Conclusion Bibliography Plagiarism Report

Page No.
4 5 6 7 8 9 11 13 15 16 17 18

Introduction
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What is VRS ?
A voluntary retirement scheme (VRS) is a package offered to certain employees as an incentive to retire. It usually contains generous benefits and is typically targeted at employees in middle age and/ or those who have been with a company for a considerable amount of time (e.g., ten years). Such benefits often include tax-free severance. This severance may be so expensive that it causes companies to reconsider the value of a VRS.

Why a VRS ?
The chief goal of a VRS is to downsize the number of employees on a given payroll. Basically it happened in the situation of overstaffed company. It also happens when company has suffered a heavy loss either through financial crisis, Bankruptcy, Economic slowdown or any other reasons. On that situation company is unable to pay the employees salaries, renumeration or full compensation.

Abstract
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After the nationalization of banks in India in 1969 and then in 1980, a large number of regulatory measures were adopted by Reserve Bank of India to improve the banking network and operations of public sector banks. This rapid growth had an excessive focus on quantitative achievements which made many banks inefficient, unprofitable and undercapitalized. Over staffing was one of the ills recognized by the second Narsimham committee report (April 1990). Voluntary Retirement Scheme (VRS) in Public Sector Banks was formally taken up by the Government of India in November 1999, with a view to rightsize the over staffed banks. VRS being an exit policy taken upon by banks uniformly to become competitive as regards the human resource management, it has posed certain challenges.

Objectives of VRS in Banking Sector

(i) To transform the banking organizations for increased efficiency and for controlling operational costs. (ii) To have optimum utilization of human resources at various levels in keeping with the business strategies, skill profile and requirements of the banks. Downsizing is a deliberate organizational decision to reduce the workforce that is intended to improve organizational performance. Beginning in the late 1980s, re-sizing, then right sizing, restructuring, re-engineering were substituted. Regardless of what term was used, the target of organizational activity was cutting expenses through headcount reductions and redesigning the organization's structure in order to increase profits.

VRS IN SBI

The SBI was formed through an Act of Parliament in 1955 by taking over the Imperial Bank. The SBI was the largest bank in India in terms of network of branches, revenues and workforce. It offered a wide range of services for both personal and corporate banking. The personal banking services included credit cards, housing loans, consumer loans, and insurance & for corporate banking, SBI offered infrastructure finance, cash management and loan syndication. Indian Banks Association (IBA) formulated a VRS package for PSBs, which was approved by the Finance ministry. VRS was approved by SBI board in December 2000. SBI promoted the VRS as a Golden Handshake. Indian Banks Association (IBA) to circulate the voluntary, retirement scheme to Public Sector Banks as per their individual manpower planning. It became operational after adoption by the respective bank's Board of Directors. The scheme remained open till March 31, 2001. The scheme envisaged to assists banks in their efforts to optimize the use of human resources and achieve a balanced age and skills profile in tune with their business strategies.

VRS features
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The following guidelines under scheme was issued by Indian Bank's Association-

The scheme allowed the banks to give the payment of VRS package in two
installments

Minimum of fifty per cent of the amount to be paid in cash immediately Remaining payment can be made within six month either in cash or in form of
bonds.

All the permanent employees with 15 years of service or 40 years of age were
eligible to avail of it with ex-gratia amounting to 60 days salary as of March 31, 2000.

Employees eligible for VRS but who did not want to avail themselves of the
scheme were provided with the option of choosing to go on a sabbatical leave for 5 years

Right of refusal to give retirement to the volunteers have been granted to bank
management, recruiting against vacancies arising through the VRS route had been disallowed.

Banks had been asked to undertake a complete manpower planning exercise before
offering VRS.

Scope of VRS
Positive Impact: Better Retirement Planning
A VRS can be an attractive option for those nearing retirement age and those who do not have dependent children.

Enhance career opportunities

Those whom had not been promoted can change their job or avail that opportunity by any other means.

Gain assistance while learning

Those who need higher or professional studies makes living on a future fixed income easily to groom career.

Better opportunity for job change

High skilled persons or higher post persons can change their job and ripe the fruits of better opportunities.

Open scope for technology

It leads the computing world by reducing workload by reducing staffs and open doors of efficiency and more skillful works.

Growth visible
In year (2001-2002) State Bank of India posted impressive first quarter performance with 21% jump in interest income and 26% rise in earnings. The bank's profits growth was however, trimmed by over 100% increase in tax provision

Cost cutting factor

Due to VRS scope of cost cutting generates by reducing redundant and extra employees. Cost cutting enhance the revenue of banks and other sectors. 9

Reduce over-staffing problems by Downsizing

We found that 35% employees are overstaffed which create extra pressure upon SBI & Other banks which unbalance the growth and development. VRS is the best way to solve this problem.

Permission to work in SBI subsidiary banks

They will be allowed to work in any of SBIs subsidiaries Banks and affiliates.

Monetary benefits to employees

The employees, who will opt VRS will get the termination dues, half their salary for a maximum period of three years and all pay and perks.

Better HRM Planning

It gives benefit to plan our human resources in efficient and effective manner by better work distribution on behalf of their potentials and skills.

Social Justification
Retrenchment and firing the employees are not better options by which Labour unions offended. IBA has approved VRS which is justified which create social respect among employees. Strikes and Lockouts are avoided.

Willful Option
It is thoroughly based upon will of employees that when they will take retirement and plan future also. There is no any pressure.

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Negative impacts of VRS

Manpower Shortage
SBI received around 35,000 applications for the VRS. By June 2001, SBI had relieved over 21,000 employees. It creates manpower shortage. SBIs manpower problems were
shared by all public sector banks.

Higher level persons were more willing for VRS

Lower level employees are unwilling for VRS due to less job opportunities. Higher level employees are more willing for VRS due to better job opportunities in market. But implication of VRS was to reduce lower order workforce.

Heavy financial burden

The cost of VRS to the bank was Rs 2,000 crore-plus. Retrenchment is the best option than VRS in this aspect.

Delays in Transaction
Delays in remittance and money transfer due to scarcity of employees from various branches for interest lost.

Minor Regional Imbalances

Minor regional imbalances, but these were tackled by SBI by rotating the administrative staff to various branches wherever there was a need to do so. SBIs manpower problems were shared by all public sector banks.

Workforce Burden
VRS move would significantly increase workforce burden and the government has now
disallowed new staff recruitment, forcing banks to retrain the remaining staff to handle new duties at the shortest possible notice.

Customer Inconvenience & Dissatisfaction

Due to shortage of manpower which led delay in customer services like cheque clearance which increase Customer Inconvenience & Dissatisfaction.

Fear of losing brand image

Due to delayed services, loyal customers as well as new customers made up mind to change the bank for better services which were the signs of losing brand image.

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Problem of recruitment
Due to shortage of experienced persons in Banking Service Recruitment Board (BSRB), Hiring & Recruitment become tuff task.

VRS would not be feasible in rural and semi-urban areas

Due to acute shortage of officers where the branches were not yet computerized the threat of bringing down the retirement age from 60 years to 58 years was putting a lot of pressure on senior bank officials to opt for the scheme.

Competition inability
SBI had many strong organizational strengths and an excellent training system, but due to weak HR policies, it had lost its experts to its competitors. It seems helpless in market competition.

Computerization led VRS

Large portion of the back-office staff had become redundant after the computerization of banks. So many persons felt helpless due to lack of training. They were keen to take VRS mostly in rural and semi-urban areas.

Daily Concurrent Audit got affected

Single officer had to take charge of 3 or 4 branches as the daily concurrent audit got affected. CHANGE IN SBIs STAFF STRENGTH 31-0301 52,558 103,993 53,729 210,280 31-0300 59,474 % change 11.63% 115,424 9.90% 58,535 8.21% 233,433 9.92%

Officers Clerical Subordinate Total

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Analysis & Interpretation

VRS Sabbatical Scheme
The employees were allowed to go long leave without pay with an aim to cut costs. They were also assured help in getting jobs elsewhere. But this scheme raised issues about the promotion procedure for those who would return. Many returnees expected promotions to be on par with other colleagues.

VRS was not for all

VRS was also not open to employees who were doctorates, MBAs, Chartered Accountants, Cost & Works accountants, postgraduates in computer applications. management would relieve only those officer cadre applicants who had crossed the age of 55 years.

VRS inequality
Also, on occasion, executives or management have not been bound by the same VRS practices as employees with lower positions or pay.

VRS illegal structure

SBI chose not to abide by government guidelines and offered VRS only to employees above the age of 55. According to government guidelines, any employee who was above 40 and had completed 15 years of service was eligible for VRS. But SBI marked its own cut-off age: it offered VRS to only those employees who were over 55. This created a furore among employees below 55 years who also wanted to opt for VRS.

VRS conflicts
The officers who were denied the VRS formed an action group in March 2001. They claimed that SBI had violated the guidelines of the Government and the Indian Banks Association. The group filed cases before High Courts in various parts of the country, challenging SBIs decisions. A delegation of VRS-denied officers even met the Finance Minister and also submitted a memorandum to the SBI management. 13

Inappropriate Loan consideration

Bank also restricted the loan facilities to the personnel who had opted for the VRS. If an employee wished to continue a housing loan after accepting VRS, he was asked to pay interest at the market rate. * After these restrictions were introduced, only 13.4% of the officers were left eligible for VRS instead of the earlier 33%. Labor unions said, They are propagating the VRS in such a manner that the employees are being compelled to opt for the scheme. VRS was completely unnecessary, and that the real problem, which plagued the bank were NPA.

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Findings
FICCI report stated that the Indian banking industry was overstaffed by 35%. In order to trim the workforce and reduce staff cost, the Government announced that it would be reducing its manpower. SBI, like all the other public sector banks, had little choice in the matter Banks would have collapsed if the VRS was not implemented. SBIs decision was taken in haste with no proper manpower planning undertaken. Theres no doubt that the VRS was mismanaged. It left all branches short on staff and managers and the remaining staff frustrated. That would lead to a tremendous increase in the workload on the existing workforce. Media reports also called SBIs decision to restrict the VRS as arbitrary, discriminatory and belying the voluntary character of the scheme. The arbitrariness and insensitivity at the corporate level had dealt a severe blow to the employees of the SBI and PSBs. Analysts felt that SBI was not able to realize the critical importance of recognizing inherent merit and rewarding the performers.

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Reducing employee strength before technology arrived only led to chaos. SBI HR executive says that the decision was taken too swiftly to enable proper communication to employees. Usually in public sector banks, the management has an interface with the employees, offering them a counselling-cum-discussion session. But in this case, since a huge number of employees were in the process of exit, this procedure was skipped.

Conclusion
Post-VRS was just money-making machines. There were fundamental fallacies in the way banks carried out the VRS. A good VRS should be demographically aligned, based on age and competency profile of the employees, should have a clear-cut manpower plan and should be driven by keeping in mind future strategies of the business. These were missing in the VRS implementation among public sector banks. VRS was unwise move. Phased implementation over five or six years will induce an ordered reduction in staff would give a better picture of effects of VRS. For wider perspective decision, it is necessary to analyze the results of short term. Best-planned VRSs have an impact on employee morale which enhances employees skills and knowledge according to changing circumstances.VRS gives opportunity to avail the facility of future planning and career planning.

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Bibliography
www.indiainfoline.com

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Cover Page :

INTERNAL Name Enrollment of the no. candidate : :

ASSIGNMENT Rajesh Kumar 07315903911 18

Course Section Batch Subject Subject Topic Subject of : Human code assignment Teacher's name : : :

: A

MBA-II

2011-2013 Resource : Management MS-112 and Meenakshi Its Effects Singh

VRS : Ms

Policy

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