State Bank of India - The VRS Story Finance Case Studies
In February 2001, India's largest public sector bank (PSB), the State Bank of India (SBI) faced severe opposition from its employees over a Voluntary Retirement Scheme (VRS). The VRS, which was approved by SBI board in December 2000, was in response to Federation of Indian Chambers of Commerce and Industry's (FICCI)1 report on the banking industry. The 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. Following this, the Indian Banks Association (IBA)2 formulated a VRS package for the PSBs, which was approved by the Finance ministry.
Though SBI promoted the VRS as a 'Golden Handshake,'its employee unions perceived it to be a retrenchment scheme. They said that the VRS was completely unnecessary, and that the real problem, which plagued the bank were NPAs3. The unions argued that the VRS might force the closure of rural branches due to acute manpower shortage. This was expected to affect SBI's aim to improve economic conditions by providing necessary financial assistance to rural areas.