The sharp rise in employee attrition rate at small finance banks will force these lenders into a fight to hire and retain talent. An overview of the annual reports shows that the employee turnover rate has risen significantly in FY23 for most small finance banks, as compared with FY22 and FY21.
Given the limited talent pool and resources, small finance banks that saw a rise in employee turnover rate include AU Small Finance Bank Ltd., Ujjivan Small Finance Bank Ltd., Utkarsh Small Finance Bank Ltd., and Equitas Small Finance Bank Ltd.
The trends follow a similar pattern seen in private sector banks, which have also witnessed large-scale attrition among junior employees.
While the attrition rate for these lenders ranged between 35% and 48%, others like the Suryoday Small Finance Bank Ltd. reported a decline to 38.85% in FY23, as compared with 41.06% in FY22 and 45.25% in FY21.
For AU Small Finance Bank, the employee turnover rate increased to 47.3% in FY23, as compared with 42.3% in FY22.
The highest attrition was seen among front-line employees, while being "notably minimal" in the middle and senior employee segments, according to Vivek Tripathi, head of human resources at AU Small Finance Bank, in response to BQ Prime's queries.
"While the attrition rate at the senior level has significantly decreased from 9.6% in FY22 to 4.9% in FY23, the attrition figures and patterns at the junior employee level are more consistent with those observed in other banks. When the bank expands by opening new branches, the focus is on acquiring experienced front-line branch employees," Tripathi said.
In FY23, the lender had 28,320 employees, marking a slight increase from 27,817 employees in FY22.
"...there has been some increase in turnover rate as the overall base of employees remained at similar levels," Tripathi said.
In the case of Ujjivan Small Finance Bank, the lender, in its FY23 annual report said, “…on the talent front, we were able to stabilise the attrition and retain and attract talent at all levels of the organization.”
Suryoday Small Finance Bank and Utkarsh Small Finance Bank declined to comment on BQ Prime's queries. Those sent to Equitas Small Finance Bank and Ujjivan Small Finance Bank did not elicit a response till the time of publishing this story.
Given the limited talent pool and resources, small finance banks that saw a rise in employee turnover rate include AU Small Finance Bank Ltd., Ujjivan Small Finance Bank Ltd., Utkarsh Small Finance Bank Ltd., and Equitas Small Finance Bank Ltd.
The trends follow a similar pattern seen in private sector banks, which have also witnessed large-scale attrition among junior employees.
While the attrition rate for these lenders ranged between 35% and 48%, others like the Suryoday Small Finance Bank Ltd. reported a decline to 38.85% in FY23, as compared with 41.06% in FY22 and 45.25% in FY21.
For AU Small Finance Bank, the employee turnover rate increased to 47.3% in FY23, as compared with 42.3% in FY22.
The highest attrition was seen among front-line employees, while being "notably minimal" in the middle and senior employee segments, according to Vivek Tripathi, head of human resources at AU Small Finance Bank, in response to BQ Prime's queries.
"While the attrition rate at the senior level has significantly decreased from 9.6% in FY22 to 4.9% in FY23, the attrition figures and patterns at the junior employee level are more consistent with those observed in other banks. When the bank expands by opening new branches, the focus is on acquiring experienced front-line branch employees," Tripathi said.
In FY23, the lender had 28,320 employees, marking a slight increase from 27,817 employees in FY22.
"...there has been some increase in turnover rate as the overall base of employees remained at similar levels," Tripathi said.
In the case of Ujjivan Small Finance Bank, the lender, in its FY23 annual report said, “…on the talent front, we were able to stabilise the attrition and retain and attract talent at all levels of the organization.”
Suryoday Small Finance Bank and Utkarsh Small Finance Bank declined to comment on BQ Prime's queries. Those sent to Equitas Small Finance Bank and Ujjivan Small Finance Bank did not elicit a response till the time of publishing this story.
With small finance banks following aggressive expansionary plans, the competition to attract better talent has increased within the sector, leading to more attrition, according to Amit Khurana, head of equity at Dolat Capital.
“Five years ago, these small finance banks didn’t even exist. But now, they are not just expanding geographically but also in terms of their customer reach … At the end of the day, the talent pool is limited,” he said.
Another reason for high attrition could be the inability of SFBs to pay beyond a level, Khurana said.
“Small finance banks are unable to pay beyond a level. So, the limited talent pool ends up going to bigger banks for better pay, as now they have the requisite experience of working in a set-up,” he said.
While attrition can exist at different levels, the reasons for employees to quit would be different, according to Vinit Bolinjkar, head of research at Ventura Securities Ltd.
"If we talk about executive level, people tend to feel discontented with their job profile and hence, attrition could be there at that level. This is common with students who have come from campus with aspirations of delivering value. But if we talk about mid-level, the reasons for leaving a job could be better pay," Bolinjkar said.
But the pitfalls of high attrition don’t just end here. With it, come employee costs which tend to be relatively higher and volatile, explained Khurana.
“If you have high attrition, your employee costs will be volatile and relatively higher because you need to re-hire a resource and then train them. Time gets lost in that and hiring always comes with its own costs,” Khurana said.
An overview of the data across quarters indicates that employee costs are rising for SFBs.
For Ujjivan Small Finance Bank, a rise in employee expenses was attributed to a host of factors. “The employee expenses increased by 15% over the previous financial year as there was an increase in the employee strength of ~1,000 staff, an increase in the average salary, variable pay, and expenditure on employee training and skill enhancement,” according to the bank’s FY23 annual report.
In the case of AU Small Finance Bank, the front-line worker segment experienced substantial recruitment, as attrition was exceedingly low for middle and senior-level positions, said Tripathi. However, the bank clarified that it was not “overly aggressive” in its hiring strategy as it wanted to “harness the potential of its current employees”.
Employee attrition is something to watch out for, as it can inflate your cost-to-income ratio and have an impact on the profitability, if the assets under management don’t build up aggressively, said Bolinjkar.
“If small finance banks are not able to attract the right talent at the right scale, it will compromise the quality and sustainability of growth. So, they need to be careful as to how they manage attrition—one can manage quarter-on-quarter, but in terms of long-term growth trajectory, it's very important especially given the clientele they are dealing with, which may not be very tech-savvy,” Khurana said.
While attrition continues to be monitored, given the current economic landscape, it is not expected to blow out of proportion.
“Attrition in segments other than front-line job roles should settle down and it will follow a trend similar to the IT sector,” said Bolinjkar.
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