Rising attrition in private sector banks sparks operational risks

Employee attrition in private sector banks has surged to approximately 25%, posing significant operational risks, according to the Report on Trend and Progress of Banking in India 2023-24 released by the Reserve Bank of India (RBI).

The report highlights that attrition rates are notably high among select private banks and small finance banks (SFBs). While the overall workforce in private sector banks exceeded that of public sector banks (PSBs) in the 2023-24 period, the sharp increase in employee turnover over the past three years has emerged as a key challenge.

The RBI emphasized that high attrition disrupts customer services, leads to a loss of institutional knowledge, and inflates recruitment costs. “Managing attrition is not merely a human resource concern but a strategic imperative,” the report stated.

To address this issue, banks have been urged to implement measures such as enhancing onboarding experiences, offering robust training and career growth opportunities, and fostering mentorship programs. Additionally, providing competitive benefits and cultivating a supportive workplace culture are seen as critical to retaining talent and ensuring long-term employee engagement.

The report also flagged irregularities in gold loan practices, including the misuse of top-up loans. Banks and other supervised entities were directed to review their gold loan policies and practices, identify gaps, and implement corrective actions promptly. Enhanced monitoring of gold loan portfolios and stronger oversight of outsourced activities were also recommended to mitigate risks.

Beyond operational risks, the report underscored the growing impact of climate change on the financial sector. Risks linked to climate change are expected to affect profitability, growth prospects, and inflation, ultimately threatening financial and price stability. To address these challenges, the RBI called for stronger regulatory and supervisory frameworks, including advanced risk management guidelines, improved disclosure standards, and regular stress testing by financial institutions.

As the banking sector navigates these challenges, addressing employee attrition and adopting proactive measures for operational and environmental risks remain top priorities for sustainable growth.