How long the stake holders of banks and taxpayers tolerate the menace of NPAs and cross subsidise them ?

As it is, there is no system of disciplining the borrowers and they benefit a lot by being non performing borrowers. The banks have to rate the borrowers based on their performance from the very beginning and have to ensure that borrowers  do not violate banks’ disciplinary norms and  they also do not depend on other stakeholders of banks to  take care of them / cross subsidise them  This issue of NPAs can be easily tackled  if banks  create a fund by levying a small penalty  based on the deterioration of borrowers and  banks can also contribute a small sum towards this fund. They can accordingly reduce the provisioning requirements. This levy will work as a disincentive to remain in NPA category. Even SEBI has to  go by this deterioration for all its dealings with the corporates. Government incentives should also be linked to the rating of banks.The rating should be made transparent through various ways by RBI, SEBI, and the Govt. Corporates should  be  made to indicate the rating given by banks in their Balance sheets and the rating has to be certified by the Accountants and Auditors and this rating should be  taken as an important yard stick by the Govt and all other agencies to provide concessions and benefits.    Over a period, this fund generated by the banks would be sufficient to cover / liquidate the non performing loans. Other stake holders of banks particularly depositors and shareholders need not bear the cost of NPAs which is not only illogical but  also not justifiable. It is time depositors and share holders fight the menace of NPAs  and get  relief  from bearing  the cost of NPAs. Ultimately the cost is passed on to tax payers and banks have to be  saved from liquidation as it happened in the case of GTB. Will some one seriously ponder over this?

Dr.T.V.Gopalakrishnan

(This comment in a modified form is published in ET dated 1st June 2013 in response to an Article NPAs  expect to double in two years.)

RBI and Gold

This statement that 'RBI wants you buy gold from banks, You will lose twice' does not seem to be correct.It is reported that RBI has not banned banks from issuing gold and this stand of RBI also does not stand justification in the present context of import of gold by banks widening the current account deficit.The RBI should have not only banned the banks from selling gold coins but also should have insisted the banks to buy back the gold at market prices. The risk in price fluctuations has to be borne by the investors.The banks have gone for Gold coins sale to make extra income which was perhaps a wrong policy permitted by the Reserve Bank and it could have been well avoided. The banks have imported heavily the Gold coins and they have no choice but to liquidate the stock through selling the coins to customers by hook or crook.The only solution available to RBI is to advise the banks to liquidate the imported gold coins at market prices and bear the loss or alternatively, RBI can also perhaps  purchase the stock at cost prices the banks have incurred and increase RBI stock.Making Customers to bear the burden of banks has to be avoided as they have already burned their fingers by purchasing coins from banks at a higher cost and they are forced to sell them in the market at a lower price.This is not in good taste and RBI could have avoided by permitting banks at the beginning itself to buy back gold.

Dr.T.V.Gopalakrishnan

BCCI and Corporate governace

Why Mr Srinivasan is singled out in not adhering to Corporate Governance principles? The term Corporate Governance is a misnomer in India and Indian Corporate System and administration.Mr Srinivasan in a way is intelligent and he knows the weaknesses of all the Board members of BCCI and he also knows pretty well that majority of the members cannot dare to point out a finger against him as they have all been purchased and pocketed. The power of money is such that it can silence anything and anybody and Srinivasan may perhaps know this truth from his BCCI and IPL experiences. Transparency in accounting and auditing are missing and shareholders in India are not that conscious about the Corporate Governance Principles and they need not worry as long as they get good dividend and some silly benefits. The whole system of Governance in India is murky and industrialists, politicians, accountants and auditors are all hand in glove with each other.Your paper should have come out more daringly about all these lapses taking advantage of the shameless deals in IPL under the shelter of BCCI and India Cement.
 Dr.T.V.Gopalakrishnan 

( This comment in response to the editorial Losing the day Job NSrrenivasan's commitment to Corporate Governance is shaky in Business Standard has been published in Business Standard dated 28/5/13).

Risks in New Banks Licensing

The need for licensing of new banks has to be genuinely assessed and the RBI has to be extremely cautious in granting the approval. External pressures have to be dealt with firmly and applications from companies which have  diversification to various segments particularly real estate and other speculative segments have to be out rightly rejected as their need for funds is huge and chances of diversion of deposits raised from public at large cannot be avoided.even if regulations are in place. RBI cannot take any regulatory risk damaging its own reputation as happened in the case of GTB in late 1990s.The fit and proper criteria of Directors of GTB was conveniently ignored and the bank had to be finally closed by merging it with OBCLtd in 2004. It is going to be a litmus test for RBI for  issue of licenses to Corporates to start banks. The new contenders have some corporates with lot of diversification  including real estate business  and facing  litigation in some courts. As long as housing sector does not have proper regulation, Corporates have ample scope to misutilise the funds and RBI will have to face the music if something seriously goes wrong.  Prevention of danger is better than finding cure at a later stage when the damage would have been deep and unbearable to the economy. Will RBI assess the Risks ?

( This comment in a modified form is in response to a write up on New Contenders for Bank License  which appeared in The Mint dated 27/5/13).

Match Fixing. Legalise Betting?

At this rate all illegal activities can be legalised. Corruption, generation of black money, betting , fixing of matches and any other atrocity taking place in the economy and society can be legalised. When good administration and Governance are impossible to implement because of lack of moral strength, then any laws what ever may be their intentions, cannot bring some order of prudence, ethics and values in the society. Educate the masses about good, honest simple living and eliminate the culture of making money and finding pleasures with illegal means to improve the living standards. Dr.T.V.Gopalakrishnan ( This comment appeared in ET in response to Legalise Betting, make Cricket cleaner in ET dated 26/5/13)

IPL and Spot Fixing

PL should be scrapped as it has become a source of money laundering , black money generation and all sorts of illegal activities for the moneyed people of this poor nation. If at all IPL has to continue it should be managed either by the Govt or Public Limited Companies with full accountability and transparency.People are being cheated and exploited by the bigwigs and they cover up many things with their money and influence with high and mighty. This country has several other burning issues and this sort of extravaganza cannot be tolerated and allowed to continue. This has adverse impact on the ethics and morals of the country which have already been ruined with repeated scams and corruption getting reported day in and day out.Dr.T.V.Gopalakrishnan( This comment i published in Times of India dt 22/5/13)

Deaths and food security bill

The food security bill is already in vogue in many of the states and Rice or wheat are made available at less than Rs 3 a kg to the masses . As long as corruption and  leakage are not controlled, the suffering of the poorest of the poor in the economy will continue and Prof Amartya Sen should understand the real problems of the economy and its people. The data capturing in India is so poor that as on today there are no dependable estimates of the people below poverty line. A visit to southern States will prove that the poverty as understood by Amartya sen perhaps is not visible is a fact. Deaths do not occur because of poverty is the ground reality, but people do suffer for want of food, shelter and clothing in many of the states because of poor administration, malpractices observed in the distribution of food grains, corruption., greed for accumulation of wealth at any cost. Can any One bring any Solution to these?
Dr.T.V.G
( A modified version of this appeared in ET dated 22/5/13).

Pricing and IPOs

All IPOs are aggressively priced reflecting the greed of the management behind.Once investors subscribe they get trapped and they cannot get out of it without incurring loses. Even the IPOs issued by the PSUs are priced high. The Govt SEBI and Merchant bankers are behind this sort of pricing for IPOs and they have no concern for the investors. It is an organised cheat.Dr.T.V.Gopalakrishnan 9This comment is published in ET dated 21/513)

Why blame RBI?

The editorial attempts to find fault with the RBI for its regulatory and supervisory lapses and has come out with some suggestions to regain the loss of trust in Private Sector Banks among the public. Being a bankers bank and a regulator and supervisor, no doubt RBI has the moral and physical responsibility to ensure that the banks do not err and indulge in transactions which are against prescribed rules, norms and guidelines, but one has to appreciate that RBI with its limited resources of man power about 17000 staff cannot be expected to scrutinize millions of transactions involving exotic products carried out by the banks and its associate business concerns having thousands of branches and whose only philosophy is to make money at any cost. All said, RBI cannot escape from its responsibility of keeping the banking system sound and viable but aberrations do take place in the context of ever increasing expansion of business having inter linkages with various markets, institutions and economies under a severe competitive and liberalized environment. The individual banks’ greed and over confidence that they can get away with any violations if detected and questioned because of the generally deteriorating conditions in the economy in the area of adherence to Corporate Governance, accounting and auditing principles, uncalled for and unhealthy interference from various quarters in banks functioning in general and appointment of Directors without complying strictly with the fit and Proper criteria, is the key issue for the banks indulgence in such undesirable activities where RBI can have a say only after the event has occurred and that too when banks are taken up for annual inspection.Time to have a comprehensive review of everything for regaining the losing confidence of the public in the banking system.

Dr.T.V.Gopalakrishnan
(This is in response to the editorial on Sting in the tale Lessons for RBI and banks from Cobrapost investigation appeared in Business standard dated 16/5/13).

Public Secrtor Banks, Directors and Corporate Governance

Why talk of repentance in leisure only? The appointment of Directors is at the will and pleasure of the influential politicians and bureaucrats and the considerations are very many better not to be spelt out.The fit and proper criteria based on qualifications, experience, specialized knowledge in the field of banking, accountancy, rural credit etc for appointment of Directors is only on paper and the contacts and connections are the real fit and criteria followed in practice is known to all in the banking system.Corporate Governance is introduced with lot of propaganda and it is practiced more in breach is an open secret.The way loans are sanctioned,accounts are restructured,and bad debts are written off is an established proof that directors on the Board and corporate Governance practices have no role to play in improving the functioning of banks. Banks suffer, economy suffers,depositors suffer,good borrowers suffer all because of lack of Corporate governance and the benefits are enjoyed by Nominee directors and bad borrowers. Some exceptions may be there but they will have their own stories to suppress and suffer.Ethics,honesty and integrity are unfortunately not available in the market and these have to be cultivated by practice,culture and commitment.The present atmosphere is certainly unsuitable for any one to even think of. Better to keep away and suffer all time  and not at leisure.

Dr.T.V.Gopalakrishnan

(This has been published in Money Life in response to the Article Directors of PSBs the Ground Reality)

Bank Licenses Another cash cow

Bank Licenses will give more opportunities for the Govt to exploit the economy in several ways. The aspirants for bank licenses are mostly Corporates having diversified interests which include even real estate business. Since banks are highly leveraged institutions, the access to money for the avaricious and greedy industrialists is unlimited and there has always been a nexus between politicians and Industrialists to exploit the economy. The election is also round the corner.The desire to improve financial inclusion is only a sugar quote and if the Govt and RBI are serious on Financial Inclusion the existing banks themselves can be made to achieve that. Unfortunately, our masses are illiterate and they can be easily fooled by some cheap gimmicks. The present approach to banks Licensing may turn out  to  be another gimmick and some industrial groups may get the license to prove to be a major head ache later on. This article is definitely a warning and has perhaps come out of the past experiences the economy had.

Dr.T.V.Gopalakrishnan

(This comment appeared in ET dated 15/5/13 in response to the article After Telecom licenses and Coal Blocks will bank licenses be the next cash Cow?)

Banks Board should be made accountable

How these sorts of violations have not been detected by the banks concurrent auditors, internal inspection machinery and statutory auditors? need an explanation from the top management. It is humanly impossible for RBI to scrutinise each and every individual transaction in banks. Further RBI has introduced sufficient checks and balances to ensure that the banks do conduct transactions as per the prudential guidelines and it is for individual banks managements to ensure   that they  do not violate any of the RBI guidelines and conduct business which is not in the interest of the economy. The greed is the force behind these banks and aggressiveness in marketing of the banks subsidiary companies' products make them to ignore the prudence and violate the directives.The findings of RBI indicate that banks do not have any corporate Governance system in vogue and the boards do not care to adhere to the minimum ethics expected of them in carrying out operations. Unless and until the banks particularly the new generation banks are disciplined, the banking system can take the RBI and the Govt for a ride and the economy will get into serious problems.  Dr.T.V .Gopalakrishnan (Mumbai)  (this comment is published in TOI dated 14/5/13 in response to a write up Banks suppressing alerts on suspect dealings :RBI probe)     

Write off of bad debts at whose cost-Tax payers and depositors?

All these write off of loans running into thousands of crores of rupees are borne by the tax payers, depositors, share holders ,general customers employees and good and honest borrowers of banks. Though there is an inbuilt solution to contain formation of bad debts and discipline borrowers, banks, auditors and accountants and make the borrowers and banks to bear the cost of write offs without passing on to tax payers and other stake holders, there is reluctance and resistance  to attempt the solution on a trial basis from all corners. Both theRBI and Govt  also talk and express their concern on the staggering NPAs and loss to the exchequer, but what prevents them to introduce an inbuilt mechanism to bring under control the NPAs and discipline the recalcitrant borrowers is something strange. If the solution suggested   by this author in early 2000s had been implemented, this write offs could have been avoided and banks balance sheets would have been much stronger today. The suggestion developed as a statistical model and found workable has been published as a book titled Management of Non Performing Assets with a Foreword by the Chairman PMEAC. This model had been suggested to be published by the Foreign Examiners who had approved the  Phd  thesis with the remark that the model is worth a trial in Indian scenario. The benefits of savings on account of write offs if the suggestion had been implemented could have been passed on to depositors by offering them a higher rate of return, borrowers by granting reduction of interest rates, and share holders who include the Govt in case of PSBs a better rate of dividend, tax payers some benefits through improved GDP growth and reduced tax rates. Are the authorities waiting for Supreme Court to intervene in managing banks balance sheets ?

Dr.T.V.Gopalakrishnan

(This comment is in response to an Article Govt Banks write offs Rs 15000 crores appeared in Times of India dated 13/05/13 A modified version of this comment has also been published in TOI.). 

Monetary policy: Highly subdued, devoid of any nudge

    

The Reserve Bank’s monetary policy for the year 2013-14 had no surprises for the market and no sermons to the Government.

The policy was on the expected lines, but the tone of the Reserve Bank was a bit diffident on the fast growth prospects of the economy.

Based on the parameters, that is suppressed inflationary pressures, sluggish growth in GDP, worsening balance of payment situation particularly the current account deficit, liquidity constraints in the economy which have not shown any encouraging signs of improvement, the Reserve Bank just reduced the repo rate by 25 basis points from 7.5 per cent to 7.25 per cent.

Consequent to this change, the reverse repo rate and the Marginal Standing Facility would remain at 6.25 per cent and 8.25 per cent respectively.

The effectiveness of monetary policy depends on its transmission, through the banks, which however has been proving to be ineffective of late.

The policy measures, particularly the reduction of CRR and repo rate effected since 2010, did not translate into reduction of lending rate to customers except perhaps for a very marginal adjustment of less than 0.5 per cent to a segment of borrowers.

Even in respect of the latest reduction of 0.25 per cent in repo rate, the bankers have expressed their inability to pass on the benefit to customers.

Over a period, the banks have become greedy and changed their business profile keeping an eye on profitability ignoring the deposit customers and the borrowers engaged in physical production of goods and infrastructure.

They keep an eye on retail and well-off customers and encourage auto loans, housing loans and other consumption loans which were in the non-priority list in the olden days.

Banks’ tendency to maintain NIM at around 3.5 per cent has been persisting despite the Governor’s exhortation to reduce it to a reasonable level and this coupled with ease of doing business more with borrowed funds than mobilised deposits has been forcing the banks to keep away from productive loans.

The problem of non-performing loans adds to the banks aversion to venture into risky loans and given an opportunity they avoid credit risk by escaping manufacturing loans. The human resources of the banks have also not been attuned to go into productive loans with adequate training on appraisal, follow-up and supervision of loans.

Making life easy has been the broader philosophy and monetary policy transmission is having a very low priority in the name of risk management and maximisation of profit, is what is seen to be in practice.

While apprehending on the inability to ease monetary policy given the poor economic scenario, the Governor in his guidance note for the period 2013-14, has, however, cautioned that “the monetary policy action by itself cannot revive growth and it needs to be supplemented by efforts towards easing the supply bottlenecks, improving governance and stepping up public investment alongside continuing commitments to fiscal consolidation”.

This is an explicit message to the Government that the RBI has its own limitations to give a boost to the economy which has been showing sluggishness thanks to policy paralysis, governance standards and dwindling confidence in the system.

This policy statement implicitly indicates that a lot remains too be done by the Government to put back the economy on growth trajectory.

The highlight of this year’s policy is that the Reserve Bank has brought in a regulatory measure in respect of unhedged portion of the foreign currency exposure of corporates which has been long overdue.

This will have some impact on banks profitability and capital adequacy areas, but it will certainly help to improve the health of the corporates and forex market in the long run.

The overall message one can infer from this policy is that RBI can think of easing monetary policy further only if inflation is brought under threshold level and other requirements which basically come under the domain of the Government to give a thrust to the growth of the economy are in place.

A genuine concern well brought out.

Dr.T.V.Gopalakrishnan

Keywords: RBI, monetary policy, suppressed inflationary pressures, sluggish growth in GDP, worsening balance of payment, current account deficit, economy

This article is published in Business Line dated 13/5/13) 

Post Comment

Growth, Food Security Bill and Poverty

This article explains the truth well that ' Delayed reform and slower growth kept an additional 109 million people below the poverty line'. The reforms which have virtually stopped since last few years, have added miseries to the people which include, more poverty, illiteracy, unemployment, and all economic related problems like inflation, high fiscal and current account deficit etc.again adding to poverty. The solution to the problem of poverty as rightly highlighted in the article lies in faster Growth and Food security will help only to add miseries of the people. Iyer should come out with more of such articles for the understanding of the masses, politicians, bureaucrats, and industrialists.Exploiting and perpetuating poverty and illiteracy can never be good economics.

(This comment in response to an article Fast Growth will save lives not the Food Security Bill appeared in Times of India dated 12 5/13)

What awaits UPA GOVT

Very rightly warned the UPA.Corruption and mis governance would never be tolerated is what the results of Karnataka election Indicated. UPA under any stretch of imagination can conclude that People have accepted the ideology of cash and carry and a scam a day of THE UPA GOVT. Dr Manmohan Singh failed to live up to his own standards of honesty and to the expectations of the masses is the ground reality and people are waiting for an opportunity to punish. The UPA is insensitive to the feelings and concerns of the people expressed in different ways and it is waiting for the next election to fool the masses and again coming back to power by cheap gimmicks and popular schemes like food security which has been denied to the people even after sixty five years of independence.

This comment is in response to an article BJPs defeat in Karnatka is an ominous portent of what awaits the UPA appeared in ET)

Old age miseries

Law cannot help to bring solace to the old couple. It can at best ensure that the couple are not beaten up and they are physically safe. But why the youngsters behave like this and how the old people can be saved from mental agony and physical harassment for want of proper food and dieting are to be looked into not only by authorities but also by the society and social reformers.Parents getting deserted by their own children have been very common these days and their social security is a major concern. The Children otherwise very intelligent and earn much more than what their parents have earned do not have the realisation, wisdom, knowledge and intelligence to understand that their own old age is not that far off.These sorts of events are happening in every nook and corner of the country and the basic cause is people seeking material pleasure giving up the Country's ancient heritage, culture, civilisation, spiritual knowledge and their own moral responsibilities to own families and society. This is what is called allowing degeneration of values, ethics and principles which prevents achieving a harmonious family and society life.The greed for money has become insatiable and the the Governance system in the Country has further accentuated it through corruption, lack of accountability to the society and the nation, non adherence to the laws of the nation, contempt for values in having a dignified life etc.Time some serious thought is given by academicians, administrators, social reformers, politicians who care for values in public life to see that society does not degenerate further., Such stories disturb the peace of mind and should never occur to any family.   Dr.T.V.Gopalakrishnan This is my response to Give us death over son's an article appeared in TOI dated 11/5/13.  

Corruption and Independent Police Commission

This article is well balanced and offers  a suggestion worth implementing at the earliest to save the economy and its people from ruining because of very  high magnitude of corruption at very high levels involving politicians and the bureaucrats.An independent police Commission if set up on par with Election commission can definitely minimise if not eliminate corruption. The selection of officials to man such Independent police Commission also should be spelt out and the Supreme Court should have some say in the matter.In todays atmosphere the only hope of the people and the country is Supreme Court and more of such institutions if developed and made functioning independently,  the economy will reach its pinnacle with in a very short span to the surprise of the whole world. Will it happen? Do the politicians have the mindset to go in for such good things? 

Dr.T.V.Gopalakrishnan

(This is in response to the Article India needs a statutory, independent Police Commission that appeared in ET  and Times of India dated 5/5/13)

Human Resources, the Greatest Risk the Banking system faces

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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 banks are high and Reserve banks 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,

(A  slightly modified version of this article has appeared in the book on Risk Management, The New Accelerator, authored by Yerram Raju and Narsimharao Venuturpalle,and published by Konark publishers  Pvt Ltd New Delhi).

      

          

     

Bharati Airtel and Ground level service.

Bharati Airtel has to improve and strengthen its ground level services to customers to project a better image. The staff at ground level and call centers waste. time, money energy and customers have to run from pillar to post to get something done. The efficiency and economic management and over all Governance are found missing affecting the image, revenue earning capacity of the Company. It may sound a bit absurd but base level service is the foundation and the stepping stone to move forward to by any company. Improvement in service will also help Customers to save their time money,energy and irritation.

Dr.T.V.Gopalakrishnan
( This comment appeared in TOI )

Laws and Financial fraud

Financial Fraud cannot be avoided by having stringent laws and punishment. But, they can be minimised or eliminated gradually,if the existing laws are implemented, Regulation and supervision are made effective and Financial Inclusion and Financial Literacy are made a reality and people have access to some well regulated system which can take care of the Financial needs of the people.Chits are in fact an accepted way of investment by people and chits as such are not bad provided they are carried out not by cheats. Ponzi Schemes are unethical and worst form of derivative business without having a grip either on the circulation of money or the number of persons forming part of the scheme. Since Chit funds are very popular and have all safety principles if conducted as per the rules and regulations and with proper supervision by authorities having accountability and are susceptible to the laws of the land and by institutions established in terms of some acts and are traceable by all means. The financial inclusion can be made a reality by allowing some of the banks like RRBs, small private Sector banks to have chit fund schemes.Most of the Private sector banks in the south particularly in Kerala were basically Chit Fund operators and they were all doing well.Even the Govt run Chit Fund in Kerala has been performing well.Laws cannot improve the system,but proper approach to the problem and aspirations of the people can tackle the issue.Of course unethical persons and unethical business models like Ponzi Schemes have to be eliminated or rooted out completely from the society.

Dr.T.V.Gopalakrishnan
This comment in response to the article"It is naive to believe there is any law to end financial fraud appeared in ET )

Is the observation from RBI Dy governor OK?

This statement of Dy Governor from RBI is uncalled for as it is tantamount to admitting failure of RBI in the eyes of public and State Govt Authorities.Chit funds come under the purview of State Govts in terms of Chit Funds Act 1982 and RBI has absolutely no role in sponsoring, running, regulating or supervising Chit funds. The greed of politicians and some unscrupulous businessmen exploit the sentiments, illiteracy and poverty of the masses and drag people to chit funds.Financial Inclusion has not taken off the way it has been planned and desired is a fact and for that the banks and the attitude of human resources manning the banks have to be blamed. Even when well off and educated customers are badly treated by bank officials is an accepted reality, the question of entertaining poor and illiterate masses by such bank officials cannot arise. The failure of Governance system in the country in general and by the state govt in particular has caused the Saradha Scam and accusing the entire formal system otherwise well regulated and supervised by the regular has not come out of conviction but to curry favour from somewhere. This sort of irresponsible statements need to be nipped in the bud itself. It can even erode the confidence in the formal financial system which is not in good taste.

Dr.T.V.Gopalakrishnan

( Comment appeared in Business standard dated2/5/13