Financial services at large and the banking sector in particular are considered the backbone of any economy. The Indian banking sector—which has a diverse mix of actors, including large state-owned legacy banks, fast-growing local private banks and a few international banks—has been facing challenges of its own.
As businesses grew, they piled up debt leading to major asset quality concerns for local banks. So much so, that bad loans were estimated at over 11% of the total money advanced by banks in the country as of March 2018.
This snowballed as some large companies defaulted, raising concerns about the banking sector’s health. The sector has been in a clean-up mode and has managed to improve asset quality over the last four years. In this period, fresh lending got affected. This, in turn, not only created a problem for industries across the board but also restricted the fast growth of the banks themselves.
However, with asset quality now mainly in the comfortable zone, banks are poised for strong growth as India continues to be among the world’s fastest-growing major economies.
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This sets up huge scope for attracting human capital for the future. But how have the top banks been doing in terms of managing their workforce and generating performance from their employees?
To assess these aspects, we looked at the numbers of the country’s top four most valued banks: State Bank of India, HDFC Bank, ICICI Bank and Kotak Mahindra Bank.
Talent acquisition at Banks
Broadly, the top four banks have jointly created around 87,000 additional jobs in the last four years. The number is partly muted due to the rightsizing by state-controlled SBI. If we look only at the top three by market value, they have added nearly 1 lakh to their headcount over the last four years.
This number pales in comparison with the IT sector, where Tata Consultancy Services, Infosys and Wipro created 2 lakh jobs in FY22 alone, but still forms an important part of job creation in the country.
HDFC Bank was the flag bearer, followed by Kotak Mahindra Bank and then ICICI among the top private lenders.
In terms of percentage, Kotak Mahindra has seen the sharpest jump with its workforce rising around 86% in the last four years.
SBI and ICICI Bank have seen their business per employee shoot up by over 50% in the last four years. HDFC Bank has managed to grow this by around a third. Kotak Mahindra Bank, already behind other larger peers, had seen this moving in the band of Rs 9-10 crore per employee, but in FY22 this figure slipped to under Rs 9 crore for the bank.
Productivity at Banks
But things get interesting when it comes to productivity. For banks, this can be captured via two metrics: business per employee and profit per employee.
Business per employee looks at deposits less inter-bank deposits plus advances (as in, the retail deposits and loans combined) and pairs it with total employees to look at how each employee, in effect, generated business for the bank.
Over a five-year period, this number has changed materially for the top three lenders in the country but slid in the case of the fourth.
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SBI, followed by HDFC Bank, ICICI Bank and Kotak Mahindra Bank, were placed in that order in terms of how much business each employee was generating for their employer in 2017-18. This stacking order has remained unchanged in the year ended March 2022, but some interesting differences have cropped up.
SBI and ICICI Bank have seen their business per employee shoot up by over 50% in the last four years. HDFC Bank has managed to grow this by around a third. Kotak Mahindra Bank, already behind other larger peers, had seen this moving in the band of Rs 9-10 crore per employee, but in FY22 this figure slipped to under Rs 9 crore for the bank.
If we consider consistency, SBI, HDFC Bank and ICICI Bank have been pushing the business per employee continuously in the recent past.
Interestingly, five years back the difference between the business per employee of SBI and HDFC Bank was not significant. The two largest lenders were separated by around 10%. This has doubled if we look at the same figures for FY22.
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As against the top two private lenders, HDFC Bank and ICICI Bank, who have increased their business per employee by Rs 5-6 crore over the last five years, SBI has pushed this figure by Rs 9 crore in the same period.
This shows that the country’s top bank may be seen as a legacy player but with a mix of employee rightsizing and business growth it is giving a tough fight to private-sector peers when it comes to generating business.
When it comes to profit per employee, the picture changes.
The country’s top bank SBI may be seen as a legacy player but with a mix of employee rightsizing and business growth it is giving a tough fight to private-sector peers when it comes to generating business.
HDFC Bank, the country’s most valued lender, has been the leader in terms of profit per employee and remains so as of March 31, 2022.
Indeed, three of the four top banks have performed consistently over the last four years, growing their profit per employee without any break. That said, unlike HDFC Bank, for others this has happened over a lower base figure.
In fact, just like business per employee, here too SBI and ICICI Bank have seen the sharpest swing for the better. Notably, for SBI this meant coming out of the red in the period and then galloping with significant gains as it tried to catch up with nimble private-sector peers.
If the trends are anything to go by, SBI may even surpass Kotak Mahindra Bank in this respect in the current financial year. Kotak has already seen ICICI Bank pull up its socks and surpass it in profit per employee in FY21 and extend the lead last year. Although Kotak has also improved its performance, the upward movement has been slow at best.
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ICICI Bank, which has been cleaning its books after the alleged corporate governance lapse that took the scalp of its former CEO Chanda Kochhar, has seen ups and downs. It was the outlier in the pack, having seen its profit per employee sink by half during FY19.
But it was quick to turn the tide the following year and grew even faster to become the second best in terms of generating profit per employee in FY21 behind HDFC. It then built on that number last year, coming closer to the market leader.
SBI has seen a sharp improvement in productivity as has ICICI Bank. Kotak has shown a mixed picture with slow improvement in generating earnings per employee but has seen business per employee decline. HDFC Bank faces a high base effect but has still improved worker productivity.
Endnote
The Indian banking sector is poised for huge growth as lending picks up again both from the supply side and demand side factors. While banks are willing to open their vaults to lend again after cleaning their books and strengthening their processes, the corporate sector is looking to get into an investment cycle with borrowed money to scale up. All this bodes well for jobs in the banking sector and, in particular, with the top lenders.
SBI, which has been on a rightsizing drive, has seen the quantum of decline slow over time from 2.5-3% during FY19 and FY20 to 0.57% in the year ended March 2022. This could be a signal that it is now coming to an end and even the PSU banking major may start hiring more people again.
Meanwhile, SBI has seen a sharp improvement in productivity as has ICICI Bank. Kotak has shown a mixed picture with slow improvement in generating earnings per employee but has seen business per employee decline. HDFC Bank faces a high base effect but has still improved worker productivity.
How these top lenders manage their worker productivity in the near future would be interesting to track as the sector once again comes under the growth spotlight.
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Sources:
State Bank Of India Annual Reports undefined, Sbin Annual Reports | BSE (bseindia.com)
Hdfc Bank Ltd Annual Reports undefined, Hdfcbank Annual Reports | BSE (bseindia.com)
Icici Bank Ltd Annual Reports undefined, Icicibank Annual Reports | BSE (bseindia.com)
Kotak Mahindra Bank Ltd Annual Reports undefined, Kotakbank Annual Reports | BSE (bseindia.com)
