Group Members

Maria Abid Butt

Anis Ahmed
Ambreen Zainab
Sumaira
Asher Usman
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Topics to be Covered
 Case Background
 Why retrenchment instead of cost reduction via improved
management?
 Was there adequate planning?
 How were the sources of resistance addressed?
 How were staff-reductions targeted?
 How did the VRS package balance between attractiveness to
employees and cost-effectiveness for the banks?
 How did the VRS’s design mitigate the hardship of retrenched
employees?

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Case Background
 Selection, design and implementation of Voluntary
Retirement Scheme.
 Downsizing in two banks
 Nepal Bank Limited
 Rastriya Banijya Bank
 The exercise was supported by the World Bank
 The World Bank, at the part of Financial Sector Technical
Assistance Project, first funded technical assistance on
restructuring the two banks

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1. Why Retrenchment Instead of Cost
Reduction via Improved Management?
 Staffing numbers and the banks’ wage bills were the main
drivers of operating costs
 Many staff did not have the skills to be competitive banking
sector, and retraining of the new employees was considered
unfeasible
 The banks lacked strong middle management.
 Staff manually performed key banking operations and retail
transactions
 Main operations of the banks were politically micro-
managed

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First of all the raising staffing level is much higher
than the volume of business and banks had no more
money to compensate the high volume of
employees. On the other hand the VRS had only
included training and counseling component for
outgoing employees in order to facilitate their re-
entry into the labor force. But there was very little
interest from the workers or from HMGN for these
activities and it was stopped. So that was the right
decision to retrenchment instead of cost reduction
via improved management.
2. Was there Adequate
Planning?
 These VRSs, like many others, had the risk of adverse
selection, where ‘more productive’ employees tend to leave,
while the ‘less productive’ remain.
 The managements of the two banks preferred to retain
younger employees whom they could later retrain.

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3. How Were the Sources of
Resistance Addressed?
 Managers of the VRS in the two banks discussed the VRS
with all levels of staff
 HMGN also engaged with the banks’ remaining staff
assuring them that following the VRS they could expect to
see salary decompression, and better career prospects
 No written assurance was given
 Private shareholders were also to be compensated
 The share price was to be determined by a committee of
experts

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The union opposition have disrupted the
banking operations so they have become the
big resistance to apply the VRS. But the
managers of VRS have discussed the all story
to each level of staff. That was the big logical
step to reduce the resistance.
4. How were staff-reductions
targeted?
 Depending on the nature and volume of work, some
departments were proposed to be merged.
 Staff members with 20 or more years of service were
targeted first
 NBL assessed that it required 2,959 of its 5,322 staff. It
planned to reduce 2,311 staff via Voluntary Retirement
Scheme
 In the first phase of VRS, 1,458 of the 2,561 employees with 20
or more years of service, submitted applications for the VRS
 In the second phase of VRS, it considered offering the scheme
to 2131 staff with 15-19 years of service

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How were staff-reductions
targeted? (Conti…)
 RBB’s analysis showed that its staff strength of 5,522 was
50 % higher than what it required to meet operational
requirements
 The bank planned to downsize 3,093 staff out of which
2,323 employees were expected to opt for the VRS
In the first phase of VRS, 1,350 employees who had
completed 20 years or more in the bank, 1,244
applications were received.
In the second phase of VRs, will apply to 1578 staff with
15-19 years of service.

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They used the appropriate technique to
reduce the staff level in both the banks. They
go through two phases. In very first phase,
managements of both banks targeted the
employees serving 20 years or more.
In the second phase, they targeted
employees who was serving between 15 to
19.
5. How Did the VRS Package Balance
between Attractiveness of Employees
and Cost Effectiveness for the Banks?
 RBB agreed to add extra years to the service period of
employees below the compulsory retirement age of 58
years
 RBB also agreed to pay benefits to workers based on a level
one step higher than their current level
 NBL agreed to increase the incentive from 15 days per 25
service year and 22.5 days to 20 years of service
 In the second phase of VRs, will apply to 1578 staff with 15-
19 years of service
 The incentive portion of the VRS is the only real additional
cost and the benefits are the savings in reduce staff costs
each year
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They used the incentive portion which attracted the
employee toward the VRS and this incentive portion
balanced the cost of two banks through IRR and payback
period.
 NBL  RBB  Total
 Projected Annual  3,297,297  3,567,568  6,864,865
Savings
 Projected IRR (in 10  50.5%  54.1%  52.5%
years)
 Projected Payback  1.95  1.82  1.88
Period (yrs)
6. How did the VRS’s design mitigate
the hardship of retrenched
employees?
 RBB employees chose to receive of VRS’s some amount of
upfront settlement
 NBL did have a pension scheme employees opted for
gratuity as upfront lump sum payment
 VRS’s originally included training and counseling component
for outgoing employees in order to facilitate their re-entry
into labor force

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