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IDBI board decides on VRS

Feb 7, 2000

The Industrial Development Bank of India (IDBI) has decided to have in place a Voluntary Retirement Scheme (VRS) for its employees. It has also decided on the payment of market related salaries to its employees. IDBI, is India's largest development finance institution and has been traditionally concentrating on project finance. It reported a turnover of Rs 74.6 bn for the year ending March'99.

Both these proposals were cleared at a board meeting of the institution held on the 31st January, 2000. As IDBI wants to retain good talent it has to raise compensation levels as they have been facing exodus of valued employees. Currently, IDBI's pay structure is linked to that of Reserve Bank of India, since the former is a statutory body and does not come under the Companies Act. However as there is a wide variation in salary levels for government owned institutions and the private sector this step by IDBI would have to be taken sooner or later.

Also they have chalked out a VRS scheme for those employees who are unable to meet working standards expected by the organization. The VRS of IDBI covers employees of all ages and compensation offered would be according to age and the remaining years of service.

As these institutions are over-staffed and have strong unions, the incentive to be productive is very low resulting in inefficient operations. These two moves by IDBI is necessary to retain productive and efficient employees.

Besides IDBI there have been other public sector banks also chalking out voluntary retirement schemes recently to increase their efficiency levels and this trend is likely to continue. How far these schemes are successful will depend on the co-operation from the strong bank unions.

IDBI has to keep up with the changing market environment and compete with players who are more efficient and have leaner organisation structures. As the finance sector has become more competitive to survive in this scenario they have no choice but to take such measures.

Market View:
As the market is still concerned about IDBI's NPA's it has been rated as a "SELL" by many analysts.

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