Answer to Question #156420 in Management for Meenaz

Question #156420

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) 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) 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 NPAs . 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. The unions also alleged that the VRS decision was taken without proper manpower planning. In February 2001, the SBI issued a directive altering the eligibility criteria for VRS for the officers by stating that only those officers who had crossed the age of 55 would be granted VRS.

Consequently, applications of around 12,000 officers were rejected. The officers who were denied the chance to opt for the VRS formed an association - SBIVRS optee Officers' Association to oppose this SBI directive. The association claimed that the management was adopting discriminatory policies in granting the VRS..

According to reports, SBI's total staff strength was expected to come down to around 2,00,000 by March 2001 from the pre-VRS level of 2,33,000 (Refer Table III). With an average of 5000 employees retiring each year, analysts regarded VRS as an unwise move. By June 2001, SBI had relieved over 21,000 employees through the VRS. It was reported that another 8,000 employees were to be relieved after they attained the retirement age by the end of 2001. Analysts felt that this would lead to a tremendous increase in the workload on the existing workforce.


Analyse how poor manpower planning led to problems with the bank's VRS

Expert's answer

Proper manpower planning is essential in an organization for various reasons inclusive of allowing for diversification as well as the growth of a business. Therefore, through a proper manpower planning the resources available in an organization can be readily available for utilization in the most appropriate and best way possible. Aside from that, it also allows the organization to appreciate the significance of manpower management that eventually helps stabilize the organization’s ability to make decisions on certain concerns.

In organizations where there is poor manpower planning there are negative effects that are bound to be experienced. Such harmful impacts are caused by too many employees who make it difficult to equally share the company’s benefits. Therefore, for the case of the bank, it was difficult to share the voluntary retirement scheme (VRS) benefits because there were more employees than the VRS package would cater for. This led to employee-employer conflict such where the employees formed an association to oppose the banks’ decision on the voluntary retirement scheme (VRS) (Lester, 2015). Poor manpower planning also impacted on the employees life since some of them were forced into joblessness considering the VRS package was like a retrenchment scheme as rural branches of the bank were to be shut down hence clearly stating that other employees would be sacked to enable the company to share the VRS benefits better. Due to the poor manpower planning, the bank was forced to impose that the people eligible for VRS were those officers who had crossed the age of 55 which was quite unfair to the other employees hence causing a conflict in the bank since some officers were against it.




Lester, R. A. (2015). Manpower planning in a free society. Princeton University Press.

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