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Banking sector to become less labour-intensive, automation the way forward

Madan Sabnavis
bank, banking sector, rbi

The creation of jobs has always been the focal point of debates in the country. The banking sector has been a large employer with a 1.3 million workforce in 2017-18, up from 1.1 million in 2012-13. The question is whether or not this number has been increasing at a significant pace and, if there has been any change in the composition of the same. A five-year period has been considered from 2012-13 to 2017-18. The CAGR was 4%, which is just about the industry standard given that services tend to involve more jobs. The banking business, on the other hand, has been increasing at a far higher rate than that in the stock of workforce.
The graphic shows that the dominant segment has been private banks that have expanded at a sharper rate than the PSBs which had an increase of just 1.1%. The private banks growth number is slightly on the higher side given the mergers that have taken place with other institutions. But their share has increased from around 25% to 32% during this period. The interesting part here is that the two non-officer categories have shown a distinct declining trend with there being a shrinkage in the clerks and sub-staff categories. The ratio of clerks and sub-staff to officers was still above 1 for PSBs at 1.09 while it was low at 0.09 and 0.06 respectively for private and foreign banks. But PSBs have lowered this ratio from 1.39 in 2012-13 and private banks from 0.39 the same year. This means that banks across all categories are following a similar pattern in terms of staffing.

Two emerging conclusions are significant. The first is that shrinkage in the non-officer category is mainly due to the declining use of sub-staff as their jobs are either replaced with technology or are being done by officers. The negative growth in workforce also means that replacements are not being made for those who leave due to retirement voluntary or in-course . The second is that efficiencies have been ushered in as a corollary where fewer hands are required due to automation. The growth in digital banking has made this possible. It, however, raises a more serious issue in the future because, with talk of the use of AI in banking, there will be a serious threat to job creation in this sector. There will definitely not be a reversal here.

The face of banking is changing as can be seen in terms of the composition of staff in banks over this period. The share of officers has increased while that of clerks and sub-staff has come down. This may, to an extent, sharpen the picture as there has also been the tendency for banks to outsource several of the administrative jobs like security, delivery, housekeeping etc, which, in turn, increased administrative expenses but lowered the staff size. The preference for such a model is that there is no long-term liability for this category of staff and the banks are out of the purview of unions. Therefore, labour relations tend to be very smooth.

The signpost for the future is that banking will become progressively less labour-intensive as customers switch to the digital line and most transactions at the retail end would be completed here. In fact, for PSBs, the workforce could accelerate downwards as the process of mergers takes place and staff members are offered voluntary retirement schemes and not replaced. Lending is also an activity which can see a transformation, especially with fintech taking over at the SME level where the emphasis has changed to speed and online delivery. The 59 minutes approval of loans relies on technology and less on human intervention. With algorithms determining the quality of the borrower, especially when the ticket size is small and due diligence is not required as CIBIL, GST returns, PAN, etc, address these issues, the demand for staff would come down further.

It would probably be more in the treasury and risk management areas where banks would still need highly qualified staff. With governance issues also grabbing the headlines in the recent past, compliance would require more hands.

RBI, too, has been staff conscious over the years as the graphic shows. The central bank has not only lowered the quantum of staff from 21,494 to 14,785 during 2007-2017 but has done the same across all categories of staff. The sharpest reduction was in the Class III- and Class IV-type, which are the support staff in the form of assistants. What is significant here is that the ratio of support staff to Class I has come down from 1.77 in 2007 to 1.13 in 2017. Interestingly, at the turn of the century in 1999, this ratio was 3.24. The focus has changed today with less support being provided and technology being leveraged. The replacement of staff has been more parsimonious and directed towards the officer category where there is a greater pressing requirement.

This is a harsh reality where the banking sector will not really be contributing to employment generation directly. While the outsourced model will add some jobs on the sales and back office front, they would be more on the support side. This would be the trend in other financial segments going ahead, too. The securities market that was dominated by brokers has been streamlined with dematerialisation of shares and online trading. Insurance policies can be procured online which obviates the need for having agents which was a major constituency of the industry. Automation in banking has done away with the need to have more people at the service level and even the skilled manpower requirement will decline over time. Training is also being administered online as a larger community can be reached. This has happened in the west in commercial banking and it would only be a matter of time in India when this transformation takes place. We need to be prepared for this change.