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Banking > Policies> Vision for banking

Vision for the Banking System I
- Mr R Narasimhan

[Mr Narasimhan , retired as Deputy Managing Director ( Systems & Technology and Personal Banking) from State Bank of India. He is a prolific writer & is in advisory group of banknetindia.com]

1. The Last 50 years - A snap shot

1.1 After independence in 1947, and the proclamation of the Indian Republic in 1950, the country set about drawing its road map for the future. Public ownership of banks was seen inevitable and SBI was created in 1955 - to spearhead the expansion of banking into rural India and speed up the process of monetisation

1.2 Political compulsion's brought about nationalisation of banks in 1969 and lobbying by bank employees and their unions added to the list of nationalised banks a few years later.

1.3 Slowly the unions grew in strength, while bank managements stagnated. The casualty was the customer. Service declined, complaints increased and bank managements were unable to stem the rot.

1.4 In the meantime, technology was becoming a global phenomenon. Lacking a vision of the future the bank unions erred badly in opposing the technology upgradations of banks. They mistakenly believed that technology would lead to retrenchment and eventually the marginalisation of unions.

1.5 The problems faced by the banking industry soon surfaced in their balance sheets. But the prevailing accounting practices enabled banks to dodge the issue.

1.6 The rules of the game under which banks operate changed in 1993. Norms for Income Recognition, Asset classification and loan loss provisioning were put in place and Capital Adequacy Ratio became mandatory. The cumulative impact of all these changes has been on the Concept of State ownership in banks. It is increasingly becoming clear that state ownership in banks is no longer sustainable Yet the government is not willing to give up its hold on state owned banks.

2. Vision for the Banking System

(i) In future, the customer and technology will together drive the banking industry.

(ii) State ownership and good customer service in banking cannot coexist. State ownership is also an anathema to sound commercial banking. Its viability will be determined by its mix of business and profitability - and not considerations of public policy; and unless the state moves away from banks, the banks cannot surge ahead. I expect that this will happen before this decade is out.

(iii) Good corporate governance demands that the shareholders elect their Board of Directors and the latter, the chairman of the Bank. The Board of Directors expects the chairman to pursue policies that will enhance shareholders' value and boost their returns. Nothing else matters; otherwise John Reed would not have left the Citibank. This might happen in India sooner than anticipated.

(iv) There will be a sea change for employees too. Secure jobs will be replaced by contractual appointments, for a specified period of time. The unions will merge into the shadows and bank managements will turn effective. As a result there will be swifter turn over of personnel in banks. But at the same time, skilled personnel from other disciplines will enter banks in increasing numbers.

(v) The changes will have an impact on the branch network of banks, their number will shrink in urban/metro locations: while they may grow, slowly though, in mofussil/rural areas. The network will also be a mix of click and brick and mortar branches - the former in urban/metro locations & the latter in mofussil/rural areas. It is likely that these two sets of branches may be run by two subsidiaries. Also click branches in urban/metro locations will be driven by technology, manned by just 1/2 persons, and open for business 24 hours of the day, 7 days a week, 365 days in a year.

In concluding part of this feature
read about the challenges before the Banking Industry which includes the issues of managing the NPA Syndrome & Employee frauds . Mr Narasimhan also highlights the need for evolving new business model.

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