Are Public sector bankers underpaid or private/foreign ones overpaid?

We are highly  highly biased against the public sector especially the banks. It is as if these banks are govt owned and remain inefficient by choice. These banks at one time were private and run pretty much like other private banks of today and were highly efficient and dynamic minus all the technologies of today. It is a pity that they all were nationalised and things changed dramatically for them in future years. Less credit is also given to public sector as it provided most of the talent which shaped private banks later. But that is another story for another post.

One perennial issue since coming of private sector banks in 1994 is the disparity in pay scales. Actually, these differences would have existed even between 1969-94 as foreign banks and remaining private sector bank etc must have paid higher salaries than nationalised banks. But as nationalised bank jobs carried element of prestige as well, these differences would not have mattered. Now, there is not much prestige left and pay scales were low anyways. It has turned out to be a worst of both the worlds – low pay and low job status. This status bit matters as one continues to see talented people taking up central bank jobs which has similar low salary base but not in public sector banks.

We usually put the answer as salaries of public sector banks are too low. Another way is to question the high salaries of private sector/foreign banks.

What is it about (private) banking that one demands higher salaries (which we get to know from wage differences) and get it too? This question was widely asked during the global financial crisis of 2008 when salary/bonus matters made people furious. It was seen that financiers/bankers as a community earns much more than any other sector. In US atleast much of the sector was in private hands ( I say was as today we don’t know who actually owns banks), so the India debate does not arise there.

This is all the more ironical as whatever today’s bankers (and central bankers) may make us believe over their mythical powers, banking has been as old a subject as any. If one reads histories of most of the banks, you come across how people with no knowledge of banking/finance actually shaped these organisations some of whom continue to survive and remain relevant. It was actually certain communities/castes which shaped banks and recruited their own community/relationship people to run the bank. Infact most outsiders were just school pass students who were then trained on banking and accounting principles. It was more about common sense than anything else.

Quite a few actually succeeded by keeping these wage costs low which was one of the key reasons for success. Whereas others who fell under the radar were those who splurged. This is a story which was seen in 2008 crisis as well. Across firms you saw these crazy bonuses and salaries and rise of greed.

One would still say, no this is modern world and times have changed and so have banks. The comparison of today’s world with ancient world is not relevant. One hardly got educated workforce and you had to rely in whoever you can get. This is hardly the case today as we have experts on all kinds of finance/banking matters. It is this talent which demands a salary and has to be paid market driven salaries.

Though again this argument for whatever its merits is not fully acceptable. Barring some special expertise on law and accounting, most of banking matters are learnt the old way – on the job. There is no replacement for this. Moreover, market hardly determines these salaries as we saw so blatantly during the 2008 crisis. Infact, if you look closely at most banks/financial firms in India, you do see many engineers across roles.  This is puzzling as why do we see engineers in banks and how is that a talent for a bank? Banks can say we train them on banking/finance, well then why pay them that high?

So it is not an easy issue to answer. Based on experiences so far, one would say there is a case for both sides to adjust. Public bank salaries have to go up and simultaneously those of private/foreign banks have to come down. Public banks also have to do a huge change in perception management. Currently, even if they raise salaries it is unlikely they will get so called banking talent. It is ironical really that public banks which have opened branches across the country have become so irrelevant and no one wants to work there. Where as foreign banks which are barely present continue to be so relevant and attract talent.

We also need a wider debate on the role of banks/finance in the society. The disparity of salaries is not just between within banking sector but between banking sector and other sectors as well.

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