Indian banks, especially private ones, are seeing a rise in attrition among employees, which can impact customer facing franchise as well as productivity, foreign brokerage firm Jefferies said.

It, however, added that the resultant increase in staff costs appears manageable at the moment.

The average attrition/ turnover rate for private banks is around 36 percent for FY23 and has risen by 400 bps YoY.

“However, attrition rates are highly diverse ranging from 7-15 percent for older private banks (like Federal, Karur, City Union Bank) and highest for smaller private banks (like IndusInd, RBL, Kotak) and small finance banks… (like AU SFB, Equitas, Ujjivan),” Jefferies said in a note.

For larger private banks like HDFC Bank, ICICI Bank and Axis Bank, the attrition rate is closer to sector average. PSU banks see very low attrition.

While most banks have seen rise in attrition rates, key exception was ICICI Bank that has seen reasonable decline in attrition rates.

Employee Pyramid

The staff pyramid of banks is very bottom heavy, with 94 percent of employees at junior/sales level. This segment also has high attrition levels — 3x of levels for senior and mid- level management.

“Moreover, the majority of hiring is also happening at this level, reflecting the focus across banks, NBFCs and fintechs to expand their reach and servicing levels,” it noted.

In this context, most banks offered decent hikes (based on median hikes) in FY23.

“Staff costs form about half of total opex for private banks and 13-15% of total income in FY23. They are higher for banks like Bandhan, Uttkarsh and AU SFB whereas lower for Axis, HDFC and IndusInd,” Jefferies said.

Every 2 percent higher than expected staff cost could impact profits by a manageable 0.5 percent, it added.

With strong topline growth and low credit costs, banks were able to absorb higher growth in staff costs without impacting profitability.

“While earnings risks may be limited, a high attrition can impact retail and customer facing franchise as well as impact productivity,” Jefferies added.

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