Tomorrow’s Banking: Not to Miss the Essential Fronts

Tomorrow’s Banking: Not to Miss the Essential Fronts

Dr BK Mukhopadhyay

(The writer, a noted management economist and an international commentator on business and economic affairs, can be reached at m.bibhas@gmail.com)

One thing is often dodged even at the senior level – is it that the banking changing? It is the nature of operations that is changing, not banking. Section 5(b) defines banking ‘Accepting for the purpose of lending or investment of deposits or money repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise’.

Good Goings?

In many economies Banks are now operating in a fairly deregulated environment and are required to determine on their own, interest rates on deposits and advances. Side by side: intense competition for business involving both the assets and liabilities together with increasing volatility in the interest rates has brought pressure on the management of banks to maintain a good balance among spreads. Banks are exposed more to credit and market risks in view of the asset-liability transformation and with liberalization banks’ operations have become complex and large, calling for better strategic management.

It is really satisfying that the asset-liability [ALM] management have been gaining ground at every level - ALM being an integrated risk management approach for managing liquidity risk, interest rate risk. Banks are more serious now regarding combating money-laundering, reinforcing KYC, devising ways and means to bolster customers’ confidence-level and leaning heavily on risk management devices.

Rural Front: Hugely Untapped!

So far as the rural front is concerned still there remains a big gap between the expectations and the results so far achieved. Bringing every part of the society into the organized banking fold is the real challenge. SHG-bank linkage process is just a good beginning, which, in turn, is to be continued in such a manner that it really becomes a revolution ensuring assets generation on a continuous and spontaneous basis. There is no doubt that the SHG concept has been working well not only in India but also in even tiny States like Mali. In our country it has already covered huge households. Side by side the need is there to upgrade these groups. SHGs need to graduate themselves from providing consumption/ agricultural credit to micro enterprises level economic activities in order to generate a higher income level - upgrading from papads and pickles to higher level of economic activities – as rightly observed by the noted economist Dr. C. Rangarajan.

Rural bank branches should evolve a system that not only provide credit but also allow farmers to earn better. A credit-plus mechanism could help them repay the loans easily. No one can dwell better than banks on inclusive growth and as such the crucial need is there to percolate among the poor. It is to be kept in mind that though the GDP growth rate has been 7 per cent in the last decade yet the rural economy recorded only a palpable 2 per cent! Even the targeted 4 per cent growth has not been achieved during the 11th Five Year Plan and the same target though placed for the 12th Five Year Plan would be difficult to achieve in the absence of innovention [invention plus innovation].

But putting the entire responsibility on the banks is not going to bring in sunny days in the absence of coordinated drive. Banking sector is just one of the wheels in an economy and other wheels have to move simultaneously if development is sincerely targeted.

It Is Business after all

Business processes must become more mature and the Institution must be able to deliver higher performance-spatially, temporally, hierarchically and functionally. Obviously, to achieve the same the starting point is designing [the comprehensiveness of the specifications as to how the process is to executed]; followed by the performers [people executing the process based on skill and knowledge]; owner [persons shouldering the responsibility for the process as well as the results]; infrastructure [information/MIS that support the process]; and of course the metrics [the measures the company uses to track the process’s performance].

Boosting of service quality, keeping in view the very nature of effective demand, is the crying need. The challenge is not only to acquire the customer, but also to retain him in the business for furthering the process of improved customer value. And of course the formula for trade off comes into play in such a vital context. Quality is nothing but a summation of cost and time. Changing any one of these variables would lead to change the outcome. If the amount of time is shortened to complete the assignment, either the cost is to be increased or quality is to be lowered. Quality refers to identifying the quality standards relevant to the assignment and determining how to measure and satisfy them.

Human Factor: No Half-Cock Shot Please

The challenge, therefore, remains threefold: acquiring the right technology, deploying it optimally and remaining cost-effective whilst delivering sustainable returns to shareholders. Thus, managing technology and human resources so as to reap the maximum benefits remains a key challenge for the Indian banks.

As has rightly been diagnosed - an institution can optimize performance by ensuring that each of the three sides of the performance triangle - corporate culture, the task the individual must perform and the motivation / behavioral make up of their employees – undergoes cautious treading. It is a pure case of change management and as such banks need to focus on appropriate capacity building measures to equip their employees to handle advanced risk management systems. And it will not be out of the place to mention here that the supervisors as well need to equally equip themselves with appropriate skills to have effective supervision in adopting those systems.

Again, many of the banks are now going to hire fresh talents from the market. On this score it is to be ensured that the banks are required not only to recruit fresh talents, but retain the existing talent through prudent human resource management policy also in the absence of which the growth process will be hit largely. Past experience shows the gaps – many good promising talents in the public sector banks have been grossly neglected that resulted in, in turn, poor creativity and innovations.

Poor plight of regional wing of national-level rural development training institute only led to waste the nation’s money. It is a matter of grave concern that nepotism, corruption and in most cases poor quality of faculty / trainers have been ruling the game and regrettably no action has been taken to conduct intensive enquiry into such affairs. Queries raised from responsible quarters remain unanswered and thus showing and indicating that the charges are real and being suppressed. Honest people are tortured and shown the gate! Culprit was not taken to task and allowed to retire peacefully! Damage is already done – who is to replenish that?

It is not known when the authority will come out of hibernation and punish the culprits who are simply roaming freely and downing the nation’s image!

We go out, time remains!

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