Call for a 'brave and bold' Indian banking sector

(The author is a Professor of Management and Economics, formerly at IIBM (RBI) Guwahati. He can be contacted at m.bibhas@gmail.com)

Dr. Boidurjo Rick Mukhopadhyay

(The author, international award-winning development and management economist, formerly a Gold Medalist in Economics at Gauhati University)

While recognising the fact that India's banking sector has been attracting global attention because of its proud plumage, innovation and performance – striving to reach global customers and achieve agreeable standards for a global presence – an impeccable achievement of having our wings spread across the globe, at the same time the very fact remains that banking business environment today is more complex compared to even a decade back. It has become increasingly customer-centric and at the same time risk-centric where efficiency alone or tinkering around the existing strategy skill input levels cannot give the desired level of success. Clearly, amongst other key components it is from ability comes profitability.

Dimensions and gaps

Yes, it is the day of pure banking and nothing else indeed inasmuch as the basic job of banks, remains as before. The very nature of banking business today, essentially calls for adapting to continuous fast evolving needs and changes – that is to say effectively countering the hurdles, while at the same time ensuring profitability through marketing of the product/service range/value-addition. The very form of marketing for the banking sector has also changed over the years.

Especially, in today's fiercely competitive world, these players have to learn from the past – as well as ongoing experiences – the art of winning over the customer and at the same time retaining the more demanding customers through optimum utilization of manpower and technology. Renovating and adaptability to the changing scenario is the arena where the players have to apply more sophisticated service-rendering skills and abilities. And therefore, the need arises to reinforce the team with renewed updated visions and attitude.

On this score, the challenge comes from two directions mainly – to what extent a bank is employee-customer centric and risk-centric. In fact, the post Basel III era belongs to banks who could manage the risks effectively. Banks with proper risk management systems would not only gain competitive advantage by way of lower regulatory capital charge but also add value to the shareholders / stakeholders.

Clearly, the road is not smooth for the small banks struggling for survival in reality. Turning the corner has never been easy and at the same time become more delicate under the ongoing facts and circumstances. Performance in many of the controllable areas has not also been good inasmuch as so far as the HR Management is concerned.

A huge gap is noticed not to speak of talent retention, which, in turn, has remained more restricted to paper works. Result-poor profit level, virtually comparatively stagnant business' nature picture!

Especially for the comparatively small banks the urgent need is there to better operational performance in every segment. One of such vital areas has been comparatively high cost-income ratio. The cost-income ratio of the small bank is still unfavorable [quite high] compared to the biggies as well as the peer group and thus the small bank must improve upon by increasing the business rapidly.

Inherent strength: The future cannot be a black one

Thus, the future is for them who emerge to be top risk managers through optimal utilization of all of the resources – physical, financial, technological and the most important one – the human resource.

The point is: days are not meant for the non-performers, ignorant [unwilling to learn at the same time since vanity plays its ugly role] about the contemporary banking world's fast changing nature. Crisis period calls for a careful assessment of the causes, effects as well as the future plans and as such any sort of complacency is out of question.

What is more under the ongoing scenario – especially keeping in view the fast-changing banking scenario – where a particular technology is being replaced rapidly by another technology – it is better to take for granted that in the near future there would be intense competition – intra and inter [players being Government owned banks, old private sector banks, new private sector banks and foreign banks] not only at the macro-level, but at the very micro-level also.

Naturally, fixation of strategies, continuous upgradation of skill and making best use of talent backed by effective planning techniques that take care of the forthcoming series of happenings/ things, pose the biggest challenge. Especially, care should have been taken so far as bank marketing in rural areas is concerned since around 47 per cent of the banks' branches exist there and as such the very need to turn them into viable ones.

The most unfortunate part on this score is that a comprehensive knowledge regarding the rural economy is largely inadequate – the same gap: talents have not been utilized, rather they have been given a back seat by the minnow's competent [?] management! There are several instances that rich expertise of managers who served the rural banks for long number of years straight was not given any importance by a section of the top management, and thus completely flouting the laid down norms. Personal disliking rules the game and the banks suffer! Culprits go scot free!

Again, any sort of merger-amalgamation process must be goal oriented. The regional rural banks have been merged to form a single entity: has it solved the problem of non-recovery of loans, profitability, employee productivity or best utilization of manpower? Simply asking banks to merge does not serve any purpose if the objectives are impractical. It remains also a fact that privatization alone cannot solve the banking sector's problems. If the public sector banks go on showing a growth trend why not to encourage them.

A well-developed banking system, ably supported by other development agencies undoubtedly paves the way of fostering the growth engine providing a firm and durable foundation for the overall development of such economies in as much as in this age of globalization, banks are considered not merely as dealers in money but also the leaders in development – not only the store houses of the country's wealth but also the reservoirs of resources necessary for development.

It has rightly been observed that the very industrial revolution in Europe in the 19th century would not have been possible without a sound system of commercial banking. Over time the maturity level and the effective demand have grown simultaneously. As profitability is one of the prime business evaluation indexes, simultaneously with other vital indicators like: strength and soundness, credit quality, growth and efficiency, betterment of cost-income ratio – one of the top sub-criteria in the arena of profitability – occupies the central place. Efforts must be on to move towards that direction so that within a reasonable time the ratio becomes nearer to the peer group level.

The betterment, in turn, is hinging upon two vital wings – minimization of cost [interest plus operating] and maximization of income [interest plus non-interest]. The first area has been on the rise due to external factors as well as internal factors, while the second area reflects better picture emerged from the segments.

Finally: for how long the huge NPA burden would be troubling the public fund?