Finance Minister urges public sector banks to change HR policies

Union Finance Minister Nirmala Sitharaman has issued a strong directive to Public Sector Banks (PSBs), urging them to fundamentally reform their Human Resources (HR) policies to ensure that branch-level staff are proficient in the local language of the region they serve. 

The Minister stated that this change is crucial for deepening customer connection, fostering financial inclusion, and restoring the “human touch” that was once the hallmark of Indian banking.

Speaking at an event hosted by the State Bank of India (SBI), Nirmala linked the loss of personal customer interaction directly to current HR practices that frequently post employees from different linguistic backgrounds without adequate local language knowledge.

The Problem: Waning Customer Connect and HR Policy Flaws

The Finance Minister did not mince words. She called the language barrier the “only flak” she is unable to defend on behalf of PSBs.

She highlighted that Indian professionals abroad make an effort to speak a few words of the local language for courtesy. However, the opposite often happens in domestic banks.

“Language is an important way to communicate with your customers… in our own country, because of HR policies, staff are often posted without knowing the local language. That human touch gets lost.”

Recent political and public outrage, particularly in southern states like Karnataka and Maharashtra, underscores the urgency of her appeal.

Incidents where bank officials refused to speak local languages have led to condemnations, apologies from banks, and even the transfer of personnel.

The Minister stressed that conversing in a customer’s mother tongue is a matter of “basic etiquette,” regardless of their proficiency in Hindi or English. This practice significantly enhances customer service.

The Mandate: HR Policy Reform and Appraisal Weightage

To solve this systemic issue, Nirmala proposed concrete changes to recruitment and appraisal practices:

1. Recruitment for Local Connect: PSBs must change their hiring practices. This is necessary to ensure every staff member posted at a branch understands and speaks the local language. She specifically noted that top management may not need to speak the regional language. However, branch-level officers must have this ability.
2. Performance Appraisal Link: The Minister announced she would “strongly push towards performance appraisal on the basis of his or her efficiency in the local language.” By tying language proficiency to career progression and remuneration, the government aims to create incentives. These incentives are designed to foster cultural and linguistic familiarity within the banking system.

Finance Minister on The Economic Cost of Impersonal Banking

Nirmala pointed out that the shift away from personal customer connect has caused severe economic consequences for the banks. This problem has led to a detrimental over-reliance on external systems.

• Loss of Internal Credit Knowledge: In the past, bank officials knew their local customers and could personally vouch for their creditworthiness. This essential internal knowledge has diminished, leading to a heavy dependence on Credit Information Companies (CICs).
• Loan Denial and Paperwork Burden: The Finance Minister lamented that delays and errors frequently occur when external credit agencies update records. These issues often result in the denial of loans for deserving customers. She also criticized the excessive documentation required from borrowers, stating banks “can’t be putting the onus on the borrower to go on proving and providing documents till death comes.”
• Push to Informal Lenders: This rigidity and lack of personal connect are driving distressed individuals toward moneylenders for credit. Using informal instead of formal finance is a significant step backward for financial inclusion.

By restoring the ability of staff to communicate effectively, the Minister argues banks can re-establish trust, simplify processes, and make services more accessible and less intimidating. This will allow them to organically grow their business.

She concluded by urging banks to adopt a model that blends “old-fashioned banking with the new technology driven banking.” She emphasized that they must balance high tech with “high touch.”

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