The banking has undergone a sea
change over a period in terms of form, complexion, technology size, volume of
business and products expansion. The expectation from banking has been on the increase as is always the case in
a developing economy where integration with the
global economy is a reality and the function of intermediation is
becoming more complex and challenging. The banking systems' balance sheet size
is increasing and off balance sheet volume is becoming mind boggling compared
to the past trend. Inclusive growth
being the accepted policy of the Government and financial inclusion is the only
way out to ensure that, the responsibility of banking system is becoming something
of a very high order in the sense that on one side, it has to grow to
meet the challenges of attaining
standards of international excellence and on the other, it has to cater to the
needs of the growing masses consisting of illiterate, half literate and poverty
stricken, unemployed, underemployed, mobile population who can be easily influenced by cheap
politics often resorted to by our politicians who strongly propagate for periodical
write off of loans etc.. Implementation of KYC norms which is becoming an
inevitable necessity to eliminate many undesirable, antisocial and illegal
activities in the larger interests of the society and adoption of fast changing
technology as per the times, the banking
system's task is really daunting. While the economy grows the banking system
enjoys good deposits, quality advances, investment and profit and the moment
economy slows down, its first impact is first
felt with growing non performing
loans, restructuring of loans, poor deposits, advances, investments and low
profit.
In this background the risks that
banking system faces are manifold and more than anything, the biggest risk is
from the angle of human resources. Business Risks will emanate from human resources and as on today,
it does not seem to have been adequately factored into and leave alone
understood. Man power planning does not seem to have been given the importance
it deserves in any of these bank groups. Recruitment, training, up gradation of
skills and knowledge development, placement etc to meet the demands of present
day banking illustrated in the above paragraph have not been figuring in the
scheme of things and the risks arising from the management of human resources
are not manageable with ease and
the repercussions will be very serious.
As it is, the absence of the Bankers Training College of the Reserve Bank of
India is very much visible in the
working of banks these days and general ignorance of banking at operational and
customer service delivery level has been very much felt. Monetary policy
transmission mechanism through banking has been not as effective as the Reserve
Bank desires and this has been perhaps due to the disconnect observed in
understanding of the Reserve Bank's policy expectations at all levels of
banking as was the case earlier when the
Banker's training College was functioning. A few top level executives of banks
understand RBI's requirements which, however, do not get percolated down. The
top management has its own commercial considerations and business targets,
compelling it to keep RBI's policy requirements within the broad framework of
its regulatory requirements and at the same time carry on with decisions best
suited to its competence to expand business in a most competitive environment.
The ability and knowledge of the bank's
human resources will only command
respect in the market and decide its reputation and growth prospects in future.
The knowledge gap between the top management
and down the line staff will expose the
banks to both business risk and regulatory risk. One example is interest rate
fixation by the banks. Banks announce a
base rate and have their own Bench Mark Prime Lending Rate, Prime Lending Rate
and final rates charged to borrowers.
The implications of all these rates are
not known at operational level staff and the borrowers are also not being made
known or educated about the rates charged to them. Borrowers expectations from
banks are high, banks expectations from the Reserve bank are high and Reserve bank's
expectations from banks' borrowers and
markets are also high when it frames its policy rates. Ultimately, when the human resources at banks' level work
without having any knowledge of Government's economic and fiscal policies,
Reserve Bank's monetary policies and its regulatory and supervisory
requirements, and their own top management's philosophy it may lead to a major
business risk particularly in the area of credit and asset management. This
knowledge gap risk is very vital and needs to be filled up. Knowledge
development particularly at least at middle level and top level management
including all Board Members is very essential to understand the rationale
behind management decisions on deposit, advances and investment, their mix and
dynamics.
Up gradation of skills:
The skill development has to be
based on banks portfolio mix in assets, liabilities and off balance sheet
items. Though assets and liabilities consist of only very few items, the
dynamics involved in the composition of assets and liabilities are getting
complicated day by day. The human resources who manage these need both an
overall knowledge of banks balance sheet items and specialised knowledge about
the liabilities, assets and their composition and dynamics. Placement of staff based on their aptitude,
attitude, skill and knowledge is very
crucial in the coming days .
The major liability of any bank is deposits
and deposits are not easy to come these days because of tough competition,
limited products, persistence of inflation and availability of alternate
products in the products. Here the human resources have to be really talented
not only in marketing of the products but also in attracting and retaining the
customers. Knowledge of staff in understanding KYC requirements, monitoring of
KYC through operations, providing of hassle free services to deposit customers,
educating the customers about some basics of banking, handling of literate and
illiterate customers etc require special attention of the management in
selecting human resources and placing them. Since this is the first point of
contact of customers, staff handling them have to be courteous, knowledgeable,
helpful and well behaved. Banks' image is built up from here and this assumes
lot of importance to minimise reputation risk. Banks will have to cater to
different classes of customers for deposit mobilisation and here the risks that
banks carry are unpredictable. All staff cannot handle all classes of customers
is a ground reality and placement of staff to deal with different classes of
customers is very sensitive and crucial.
Similarly, advances which is also
the bread and butter of banks business like deposits, need an expert staff who
are good at understanding credit risks and the borrowers' competence,
requirements, problems etc. The menace of NPAs can be minimised to a great
extent, provided the bank staff and the borrowers interact well , understand
each other's problems and conduct the operations in the borrowers' accounts to
the satisfaction of borrowers and banks as well. Such a situation seldom
happens in many a banks and this is due to the reluctance of bank staff to
educate the borrowers, understand the borrowers and their genuine problems and
upgrade their own knowledge and skills. Like this each area of bank's business
particularly, foreign exchange, rural credit, derivatives etc require special
skills and expertise. The human resources and technology used in these areas of
business have to have perfect alignment on a progressive basis. Most of the
banks have problems in these areas as technology and human resources do not
move together. This happens as technology moves faster and human resources are
left behind. The HR planning on
recruitment, training and placement to suit the technology and business changes
is very critical.
Staff compensation is another
area where the problem is going to be very complicated. Expectations are very
high because of market conditions, where as the capacity to pay in terms of profit is limited. Retention of talented staff will
be a problem and sudden and mass exit of staff will put the bank in a great
business risk. This needs to be factored into in the HR policies of the bank.
The attrition risk will be very high in future and finding replacement with
high level of efficiency, expertise and knowledge will be at great risk.
Loyalty of staff and institutions' response to staff's requirements have been
on the decline have to be admitted and need a workable solution to ensure continuity of relationship and mutual
respect. Career progression is important and merit cannot be ignored and at the
same time, white elephants have to be managed without affecting the
organisations' efficiency and image. These are all sensitive issues and they
need a continuous attention to keep the morale high.
Human capital which deserves equal if not more importance than
capital adequacy ratio in banks has of
late been getting ignored and banks will have to pay a huge price if they continue
to ignore this vital aspect any more. The base of any dynamic business like
banking is the strength of its human resources and they need to be very
well blended with the fast moving
technology to ensure against all business risks both known and unknown in these
days of competing environment domestically and internationally.
Dr.T.V.Gopalakrishnan,
9663508080.
( This article has been published in the book Risk Management The New Accelerator,brought out by Professional Risk Managers' International association, Hyderabad Chapter.)
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