A few experiences of my well-meaning friends, who worked in responsible positions either in a regulatory institution, a bank, or a research institution, churning out data periodically left me in significant discomfort.
Gopal went to the bank to update his know-your-customer (KYC) and he has a joint account with his wife. His wife does not have a permanent account number (PAN) but only Aadhaar. He was asked to show proof of his marital relationship 40 years after his marriage! When he got his arrears of pension, the manager requested him to invest in mutual funds (MFs) instead of deposit
Bimal, a top researcher in economic and financial data, dealing with the same public sector bank (PSB) for the past 30 years, found to his utter dismay that the account opened as either or survivor was operating in his single name. He was asked to close and re-open the account with fresh KYC giving the details of both. The branch staff had no explanation for the change—how and why it happened.
Gone are the days of barefoot banking. At the beginning of the millennium, computerisation posed the problem of the year 2000 (Y2K). The employee associations did dharnas, strikes, and put up resistance for their introduction. Now it is keyboard banking. It is the keyboard that responds to the customer and not the person keying the figures on the board. All the rationale for the tasks is built into the system. If the system fails to respond, there is no answer to the problem. Man to machine ratio decides the efficiency of the bank. The future is machine-centric banking and not customer-centric banking. The enticing speed is the essence of delivery. New stress and new worries to the profit-alone oriented banks.
The customers and the staff are on the same page of stress if we go by the 12 suicides of staff reported (anonymous) by the biggest PSB, State Bank of India (SBI). The year saw bank stocks moving up trumped up by reduced non-performing assets (NPAs) and increased profits. Asset quality, credit growth, rise in the cost of credit, low monitoring and supervision of assets due to inadequate staff at the ground level, unsustainable top executive-field staff ratio, stiff regulations, efficiency, and accountability shifting to accurate data, low transactions, and high volumes as drivers of profit would determine the share value. Already, the bank stocks are cheering the investors.
The COVID-19 pandemic has left some small banks struggling to hang on to deposits, as funds migrate to the perceived safety of State-owned lenders. Several urban cooperative banks, finding shortcuts to stay in business, had to face regulatory ire with justifiable penalties. The Reserve Bank of India (RBI) facilitated several non-banking financial companies (NBFCs) and small banks to be on a co-lending platform to help the less-reached clientele. The new normal had set in, in the business of banks.
The rapid increase in digital transactions during COVID-19 and the introduction of central bank digital currency would accelerate the migration of banks to digital banks. It is important to take steps for the development of emerging banking technologies along with security compliance. The future of banking products and services is a combination of online and offline, to respond to a consumer whose preferences are constantly changing. Will the banks be prepared to invest in change management in a manner that the traditional and digital customers will have the same level of comfort?
The fortnightly customer meets, supposed to be held under the RBI guidelines, are either not being held or shown as held with no recorded evidence. Aggrieved customers were asked to raise it online. When they tried to do it, they finds a dropdown menu of queries that would not relate to his problem. The ‘other’ column has only 100 characters to fill that are inadequate to air his problem.
When I accosted a couple of managers, they were in tears. They said that they have a 30-item performance sheet to show up to their controller. One-fourth of the controller’s time is spent attending to the VC calls. Staff meetings are hardly held either at the branch or at the regional/zonal offices. Despite additional holidays—second and fourth Saturday—the staff spends late hours. There have been occasions when the loan/ overdraft account is closed but the related security has not been removed from the cover.
The pressure on Micro Units Development and Refinance Agency (MUDRA) loans, street vendor loans, and other government-sponsored priority sector loans acts to the detriment of both the giver and taker. Due to pressure, the lender cannot do the required due diligence. The borrower does not understand his obligations to the lender. There is no time for effective communication between the lender and borrower which acts as an information barrier for efficient loan performance. Retail loans became the main breadwinner for most branches and it is a bomb waiting to tick for the NPA portfolio. Shaktikanta Das, governor, RBI in a recent speech raised the alarm over the retail loan portfolio.
NBFCs, fin-tech and small finance banks started filling the gap for micro-lending but it is all in the services sector. Rarely do they touch the manufacturing micro and small enterprises (MSE). Some of the big brothers in banking hesitate to push their co-lending platform to the advantage of such hapless MSEs, feeling that their sordid experience and the growing NPAs in that portfolio should be a better guide to the co-lender and not the enthusiasm of the latter.
Why should my wallet be full of cards? Will not one VISA or one Master for the ATM and one more credit card with the required limits equivalent to annual income filed with the income-tax (I-T) department be enough? In addition, the customer has a huge advantage today in the unified payment interface (UPI) system. Digital transactions are accelerating at galloping speed across the widest spectrum of clientele—from vegetable vendors to multi-national corporations (MNCs). The tax net too, as a result, widened phenomenally.
The Way Forward
Banks sit on a pile of data. Information asymmetry and adverse selection—the two known evils of lending to small borrowers—can be addressed through user analytics. Analytics should help the banks to lend without any collateral security and meet the full needs of their clientele meaningfully and purposefully.
For example, banks that lend to micro, small, and medium-sized enterprises know the type and value of stocks, the number of persons engaged, wages and salaries paid, the outages for personal expenses, the amount paid for insurance either half-yearly or annually, the stress that the enterprise faces in getting back their dues from the market, seasonality of the products manufactured, and other loan commitments of the industrial borrower—housing, education of children, social expenses, etc, for lakhs of customers.
Using artificial intelligence and machine learning, they could guide the enterprise to be a responsible borrower. When a bank lends to the entrepreneur’s daughter’s marriage or puts his grownup son/ daughter through higher or technical education, the loyalty of such customers to the bank enhances and brings in additional business. This requires that the bank should take time to interact with the customer/ client frequently—that hardly happens today. The system should provide such time to the field staff and managers. Bank branches struggling for posting a leave substitute will hardly be able to do such analytics.
The regulator should ensure that the branches have separate windows of service for senior citizens, women, and physically handicapped, door-step service to them, and call for data on such service as it could be generated with the click of a mouse. The fortnightly customer meetings should be held by the intensive personal banking branches of all the banks and develop a problem stack to redress them on time.
Profits may be a good barometer for investors, government and regulators to sing lullabies in banking. The way they are earned should be looked at more keenly, not from the audit point of view, but from the customer point of view. Priorities of banks have taken a shift from social banking to profit banking. In the process, they started cutting corners in basic banking. Their earnings are not from the net interest margins as much as from their non-interest income.
A service desk at each branch is imperative where the customer can either seek help to fill his KYC or to find a solution for his problem online as the accounts manager has a long queue waiting outside his counter.
There must be accountability for non-performance. If a customer query is not responded to within 24 hours, there must be penalties and these should be at all levels—from the clerical to the controller levels.
All loans within a band of Rs50 lakh should be sanctioned at the branch level and half-yearly/ annual reviews of these accounts by the controller, within due time, should bring in greater lending discipline. Any query for not sanctioning should be recorded with a copy to the controlling official. It is not as though every business decision is remunerative for the bank. Non-performing loans are part of the business. The loan-sanctioning authority should feel the comfort and not the burden of the loan. It is, therefore, necessary that, apart from adequately trained staff for the purpose, the controller should lend a broad shoulder when some allegations by disgruntled borrowers come up against the sanctioning authority, as long as the fundamentals of credit risk are addressed adequately and appropriately.
Cybercriminals are also raking in easy moolah. The more we digitise, the more we transact through digital currency, and the more risk we would be courting. Therefore, the insurance and risk management of transactions assumes great significance and the regulators should address this issue with a sense of urgency.
The future of Indian banking is neither profit banking nor social banking but responsible banking and pure banking devoid of third-party product sales.
(The views are personal. The author is an economist, risk management specialist and founder director of Telangana Industrial Health Clinic Ltd., Hyderabad.)
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