Banks have witnessed a substantial surge in operating expenses (opex) over recent years, thanks to spending on personnel due to attrition and investments in technology.
Digitisation has pushed up the costs of banks, according to experts. Operating expenses for private banks increased by nearly 26% year-on-year in the 2022-23 fiscal year (April-March), with staff costs rising almost 21 per cent year on- ear. However, total income also rose nearly 21% year-on-year. Similarly, state-owned banks also saw operating expenses and staff costs climb nearly 16 per cent year-on-year in 2022-23, while total income rose 17 per cent.
The escalation in expenditures for private banks can be traced back to the attrition rate, which ranges from 30-5 per cent for these banks, particularly among front-end staff. Employee costs, specifically, have increased by approximately 31-39 per cent quarter-on-quarter for top private sector banks during the June quarter. Meanwhile, for public sector banks, it has grown by around 23-38 per cent.
Talent costs
Banks are attracting new talent at a higher cost, which includes talent acquisition expenses, training, and possible transitional periods leading to overlapping costs.
Private sector banks saw up to a 40% increase in additional employees during the latter half of 2022-23, with the impact of this expanded workforce expenditure set to manifest in 2023-24.
The COVID-19 pandemic prompted the Reserve Bank of India (RBI) to encourage banks to digitise both customer-facing and backend processes, a move that has also driven up expenses.
Although banks may witness a rise in their cost-to-income ratios in the short term due to capital expenditure and branch expansion, these expenses are anticipated to be offset by an increase in the current account savings account ratio (CASA), ultimately reducing the cost of funds. Experts predict that opex should stabilise and gradually decrease in the medium term, driven by enhanced productivity and efficiency within the system.
