100000 Man years of Experience Lost | Retiral Effect on SBI

Most PSUs (public sector units) in India report to market how much they provision for gratuity every year.

And gratuity is a simple calculation, viz. Gratuity = 15 / 26 X Number of years of experience X Base salary

With this we can calculate

Number of Man years (experience) lost for the year = ( Gratuity provision X 26 / 15 ) / average base salary

I did this for one of the largest PSUs of India namely State bank of India and here is what I got

Number of employees = 222933

Total Staff Cost = 14480 Cr

Provision for Gratuity = 1565 Cr

Provision for Pension = 2473 Cr

Average Salary = 0.0468 Cr (4.68 lakhs) (this number includes both base salary and other perquisites/bonuses)

Number of Man years (experience) lost for the year (min estimate) = ( 1565 X 26 / 15 ) /0.0468) = 57962 man years

Even if you consider double this average salary as Base salary this accounts for 26000 man years (experience) loss per year.

That is a significant level of experience to lose every year and seeing that provisions have increased by almost 40 times this issue will only get much worse going forward

That is one of the grandest problems of KM I have ever encountered

UPDATED: doubled average salary at retirement as it was more realistic



SBI Think BIG, Think Global

This post is dated far back from 2007, when I entered into an open competition held within SBI. Most of the below strategies, I think was strongly influenced by the orange papers I was regularly reading then. Many of them still have the potential, some of them are no more relevant. Here it goes…

Think BIG, Think Global

Suggesting strategies with regard to core concerns of the Bank (SBI)

For Increase in market share

Adopting a diversified business, financial services model with support at micro level to include brokers, co-operative units, NBFCs, insurance companies and others A new set of distributors will always get a new set of customers, which in turn will help the Bank grow. As revenues from cities are saturating the Bank should tap new areas with product pushes. A very similar model is now being increasingly adopted by mutual fund houses for rural areas, which would be looking at the Bank for partnership. This can be emulated by the Bank to partner with other micro finance institutions.

Increasing overseas business banking support With the popular success of Antwerp branch supporting diamond businesses, which had a whopping $3.8 m for the first half this year compared to the $3.3 m for full last year, the Bank should focus on identifying key businesses where there is a requirement for financing Indian companies overseas. The appetite of Indian companies entering into various M&A activities in Europe and Latin America increasing, these are the next green pastures for the Bank.

Increasing core credit across Industry sectors specifically Power, Infrastructure and Roads. Total bank credit in infrastructure stood at only 20% at Rs. 108787 crores and the domestic banks serve only 7.5% of the total $320 bn requirement as pegged by the government. With strong lobbying and push for reinstatement of the tax sop under section 10(23)G existing growth in infrastructure exposure should be maintained even if it means to raise fund overseas.

Understanding specific needs of customer and equipping systems to service consistently through different delivery channels. With technology enablement it was possible for large private sector banks to reduce branch transactions from 90% in 2000 to less than 25% in 2006; this in turn translates into bigger available bandwidth for the Bank resources to concentrate on specific customer needs. Bulk of transactions currently happening over the counter in branches need to move to various delivery channels like ATMs, kiosks, internet, mobile phone and call center. It is critical to define consistent service levels across these channels.

Defining customizable work flows for varied needs across markets, sectors, regions at branch level. The key differentiator in today’s market to customer satisfaction and retention is primarily how quickly the system is responding to changing needs. At the branch level work flows should be flexible and customizable depending on factors like sector, region, or market it serves.

Driving new banking product ideas from customers. The input that a needy customer can give to the Bank regarding a new product or service is valuable and there needs to be an idea management system in place to collect, evaluate,  conduct feasibility analysis and due diligence.

Establishing wealth management for customers with strong branch loyalty with various banking and investment products. Wealth management for customers is a growing area in retail banking; it even goes to the level of managing bank accounts of next generation of customers who have a strong branch loyalty. This loyal customer base gives a ground for pushing innovative products and services.

Deployment of human resources with local knowledge for distribution of banking products and services. To speak the local language and knowing whom to talk to are key differentiators and Bank can do this by deploying local resources for distribution of products and services. The Bank can even partner with the India Post to further its reach and increase its customer base.