Employee costs are the highest for public sector banks even as compensation package is higher for the new-age private sector banks or foreign banks. Average cost per employee was Rs 5.6 lakh a year in FY10 compared to Rs 5.3 lakh a year for a new private bank and Rs 1 lakh a year for a microfinance institution.
A study by the Boston Consultancy Group points out that this is largely due to lower productivity of public sector banks. It says that contrary to popular perception that technology drives down costs, management of employee costs is more crucial.
Low-cost banking will be an HR innovation challenge. This is particularly true if they want to be very successful in financial inclusion. One of the reasons why microfinance institutions have been more profitable than banks is their low-cost business model.
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