BFSI Attrition: Blame it on the faulty recruitment process

To succeed in a highly competitive and dynamic economic landscape, banks must prioritise hiring and nurturing top-notch talent.

The Indian banking, financial services, and insurance (BFSI) sector experienced a significant surge in employee attrition during FY23, with major private banks reporting a staff turnover rate of over 30 percent. The various reasons attributed include increased competition in the market, churn in technology and sales roles, routine variables of superannuation, death, disciplinary action, and the exit of underperforming employees. Even the qualitative aspect of post-COVID behaviour of the younger workforce to reassess their life priorities has been given as a reason for this high attrition.

But, then, is there more to this entire attrition narrative that no one is talking about?

Growth Masks Productivity

Over the years, the BFSI sector in India has been grappling with process inefficiencies and low human productivity. Surprisingly, despite the issues being evident, they were seldom discussed even at the industry conferences and seminars. Simply because these were masked as long as the sector experienced growth, and no one questioned it.

Incremental net hiring in BFSI is often mistaken as a sign of macroeconomic growth. However, the outbreak of the COVID-19 pandemic forced organisations to hold back on retrenchment, concealing the true impact of inefficiencies, and offering a false sense of stability. With COVID-19 behind us and a new financial year underway, the sector is witnessing the return of aggressive sales targets and extravagant global travel incentives disguised as sales rewards. But the underlying operational challenges still persist.

The root of this problem lies in the recruitment process, especially for customer-facing roles, primarily from MBA schools. Desperate for talent, the BFSI sector recruits from the numerous B-schools that have sprung up over the past 15 years. But the quality of talent has often been foundlacking. These new recruits are sometimes assigned the role of relationship managers, but unfortunately, they end up being used as mere couriers and clerks due to the inability to effectively engage with customers. To succeed in a highly competitive and dynamic economic landscape, banks must prioritise hiring and nurturing top-notch talent, focusing on retaining the best human resources. This shift is crucial for the BFSI sector to thrive.

Staff On Others’ Payrolls

As a result of banks becoming sellers of non-banking products like insurance and mutual funds, it is possible that many bank sales and operations staff have been pushed into non-bank payroll, either owned by third-party distributors or paid for by the product manufacturer. These staff cost is now out of the bank balance sheet, and is net-of-regulatory allowed commission, thereby generating higher commissions in reality. Such practices raise questions about transparency and compliance within the sector and the actions of the financial regulators.

Moreover, technological advancements have automated many jobs in the BFSI sector, including HR, operations and risk management, making it imperative to reevaluate the need for expensive, low-productivity human resources. With greater technology adoption, the sector will not need staff headcount increase directly proportional to their business growth. However, the challenge lies not only in technology adoption but also in talent quality. The current education system often focuses on educating individuals, rather than emphasising learning and skilling. The National Education Policy (NEP) may pave the way for better-skilled talent in the future, but it remains to be seen how effectively it can bridge the skill gap.

Attrition has become a pressing operational risk in the banking sector, as highlighted by a deputy governor of the Reserve Bank of India (RBI) recently. Despite having HR experts as directors on their boards, banks have failed to make significant positive developments in HR practices, which further exacerbates the attrition issue. Does it mean that the boards are not engaged in this crucial topic of adequate and quality talent availability?

In addition, the sector predominantly displays a prevalence of short-term strategies, often prioritising short-term objectives over the development of a cohesive long-term plan. A notable deficiency is the lack of a clearly differentiated approach among Indian banks when presenting their services to clients, leading to the provision of similar products with comparable pricing and insufficient consumer orientation, even in the digital era. They all look the same to the consumers.

Furthermore, Indian banks tend to sway towards the latest quarterly trends favoured by market investors. For instance, there are periods when retail banking is emphasised, followed by phases of growth in unsecured lending, and then a shift towards corporate banking. These fluctuations in market tactics, rather than pursuing a focused execution of a long-term strategy, contribute to the challenges faced by the sector. This issue can be attributed, in part, to the priorities of the management, which may focus on shaping the price valuation of their brand's stock to achieve higher gains.

One awaits the day when a contrarian bank(er) will give a 5-year forward guidance, that they will “use AI for most tasks, and not add headcount, but rather use the best in class trained talent, only for select and critical tasks, including human interaction”. Until then, this musical chair of reasons for attrition will keep playing itself out.

Srinath Sridharan is Author, Policy Researcher & Corporate advisor. Twitter: @ssmumbai Views are personal, and do not represent the stand of this publication.