Vision for the Banking System II
Mr R Narasimhan
[In the "FIRST PART" of his thought provoking feature on Indian Banking System, Mr Narsimhan has detailed out his vision. 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]
3. The Challenges before the Banking Industry
There are four issues viz.
i) The NPA Syndrome
ii) Employee frauds
iii) Evolution of a new business model
iv) Branch Banking Vs Unit Banking
Let us examine these further:
3.1 The NPA Syndrome
(i) The list of borrowal accounts (Rs 1 crore and above) against which Banks/Financial institutions have filed suits, for recovery of their dues, has been published by RBI recently. It shows the position as in 31. March 1999.
(ii) Borrowers who enjoy a good reputation are not figuring in the list. The list includes the unscrupulous borrowers, who have robbed bank after bank in a systematic manner.
(iii) They have not hesitated to float different companies with minor modifications at vacuum centres and succeeded in obtaining credit facilities.
(iv) The list also shows the names of directors of such companies. Some of the directors are well known. Unfortunately some of them had been senior executives of banks. While some others had rendered distinguished services to the country as members of the defence forces.
(v) The list has served its purpose. Banks should enlarge the list to include all others against whom suits have been filed for recovery of their dues by the Banks. The banks could thereafter part such lists on their web sites - in the same way as Central Vigilance Commission has done in respect of corrupt officials.
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.
3.2 Employee Frauds
(i) It is not the NPA's that are likely to threaten the survival of banks. But the employees who perpetrate frauds on their banks.
(ii) Let us face it, staff administration has become so weak and ineffective that banks have not been able to deal with fraudulent employees with a stern hand.
(iii) The unions should be asked to stay away and refrain from interfering in the disciplinary proceedings initiated against such employees.
(iv) There is a saying that wherever there is honey, there are bees and wherever there is money there are thieves. But let not the thieves be from amongst the employees.
3.3 Evolution of a new business model
(i) In the past, the bank branch was the focal point between the bank and the bank customer. The business model evolved for this purpose depended upon a large network of branches. Soon, branches became important element in the chain of business transactions. The various vehicles used for settlement of transactions included the Local Clearing, National Clearing, Inter branch Reconciliation etc. In such a scheme of things, delays were inevitable and the management of the float emerged as a significant issue.
(ii) Today technology provides instant connectivity across banks and nations - jumping time zones in the process. Aggregation of the 'Risk Factor' in the settlement mechanism devised for this purpose has become an important issue. This influences the shape of the business model evolved by banks today.
(iii) This is why central banks all over the globe are working hard to introduce new measure to take care of the interest rate risk, exchange rate risk and operational risk.
3.4. Branch Banking Vs Unit Banking
(i) Looking to the fact that the customer is getting to occupy the drivers seat everywhere. The argument, U.2 THINK GLOBAL BUT ACT LOCAL has suddenly come alive. Many argue that the customers are served best by embracing unit banking. The success of cooperative banks in urban areas testifies to this.
(ii) At the same time in US, unit-banking concept is being stripped of its restrictive elements and new structures are being created to cater to a wider area if not the whole nation.
Whichever way one look at it, banking is not likely to become obsolete as Edward de Bono apprehended or dinosaurs as Bill Gates had predicted. Banking is in the process of reinventing itself everywhere in order to be of greater relevance and utility to the customer, the ultimate consumer. As long as this process of continuous improvement continues banks are likely to stay on, forever perhaps.