In the monetary policy statement for 2008-09 announced on 29th April the Reserve Bank of India has indicated that the draft guidelines concerning mobile banking will be placed on RBI website by 15th June this year.Once RBI guidelines become operational it it will be possible to use mobile phones by people for their normal banking transactions .The RBI guidelines are likely to focus on safety and interopearability issues in using mobile phones for conducting normal banking services.
Mobile banking will greatly enhance customer convenience and it will enable customers to tansact their banking business from any place or even sitting at home.It is a low cost channel .Mobile phone services have extensively penetrated in all parts of the country.There are about 231 million mobile phone connections in the country at present This will surely increase in the years to come.The youth consider mobile phones a necessity of life and hence mobile phones are very popular among youth.Mobile banking will facilitate fuller financial inclusion of the new generations of people by bringing into banking fold all young men and women having mobile phones.With the increase in the number of people using mobile phones more and more people can be brought into banking fold.Mobiles have reached all parts of the country incuding remote rural areas where we do not find bank branches and even post offices.Because of such penetration of mobile phone services mobile banking has great potentialfor inclusive banking .It will also be useful for remittances and payments.Payments of bills of service providers,utility bill payments,payments to merchants and traders etc can be made with ease through mobile banking.
Mobile telephone operators are collecting payments i.e pre-paid amounts or post-paid mobile phone bills from remote rural areas without any problem.It is time now to utilise this low cost channel for providing banking servicessuch as payment services ,deposit services,remittance facility etc However RBI has to put in place necessary safeguards by adequately addressing issues such as security,money laundering issues etc.In the long run particularly after the present generation gets replaced by new generations mobile banking facilty can surely be used as an insrument of fuller financial inclusion in the country.This will help expand the reach with little cost for banks also apart from facilitaing avilment banking services by mobile phone users at low cost.The RBI initiative is indeed a good and welcome development and the same augers well for the future of inclusive Indian banking.
Wednesday, April 30, 2008
MOOD MANAGEMENT FOR SUCCESS
Intelligence alone is not adequate for our success in life.Intelligence needs to be supplemented by personal efforts and other factors.It is found that intelligence can help us in achieving success in life only up to 20 per cent while other factors contribute the remaining 80 per cent.
The other factors referred to above can be collectively called emotional intelligence.As a first step in the direction of acquiring emotional intelligence we must try to uindersatnd ourselves.This is called self-awareness.Self-awraeness is the capacity to recognise,analyse,and understand our feelings.If we have full awareness of our feelings we can achieve better control over our lives.We must make efforts to understand the feelings which occur without our being consciously aware of them.Somebody might have made a bad remark about you long ago.You might have completely forgotten it.But the same bad remark will cause irritation to you once again if some one points it out to you and makes you to recall to your mind such bad remark.
STARTING POINT
If you dissect your feelings and if you analyse them you will understand yourself well.Once you acquire the neededself-awareness you can build up competence witin yourself to change your feelings.Therefore acquisition of emotional self awareness is the starting point in developing emotional intelligence.Simply stated emotional intelligence is the ability to get rid of a bad mood.
We must try to maintain balance between good mood and bad mood.Our mood keeps on changing depending upon our feelings.Anger changes our mood.It is extremely difficult to control ourselves when we are swept by a strong feeling of sorrow or anger.Although it is difficult to control anger it is surely possible to control the duration of anger.
We can try to reduce anger by staying alone to cool down.When we are in angry mood we can even go for a walkand thus reduce anger.If you are angry on any specific or particular issue then to get rid of anger you can shift your attention to some other issueor topic of relevance.Later once your anger gets melted you can again take up the issue about which you were angry earlier.
If you become angry with a person who has committed a mistake you have to study the reasons for the mistake.If you analyse the reasons you may even discover that mistake was not intentional and at times the same may be for reasons beyond the control of the concerned person.Therefore when you are angry you must attack the reasons for the mistake instaed of attacking the individual.This will help you in reducing your anger.By reducing the period of anger as above ,by shifting your attention to issues other than on which you are angry and by attacking reasons for the mistakes instead of the individual who has committed the mistakes you can surely get rid of your bad mood.Mood management is vital for getting along with others and for happy social life.
SELF EMPOWERMENT
We must adopt the technique of self-empowerment and self-motivation.Empowering ouselves with feelings of enthusiasm,zeal and confidence is very vital for success.We must keep on encouraging ourselves.
High achievers usually empower and motivate themselves with feelings enthusiam,and they do not wait for motivation to come to them from others or from outside sources.A positive mental attitude combined with capacity to empower and motivate ourselves will surely fetch large measure of success.Often we find it difficult to avoid the temtation of immediate and short tem pleasures.In other words we find it difficult to avoid the fascination of immediate pleasure though it may be for very short period or even a moment.We do not think of long term goals.People who can control the impulse can avoid the the risk of going after immediate pleasures.
They will on the other hand aim at fulfilment of long term goals alone.This type of impulse control can be developed over a period of time through constant efforts and practice.When fascinated by short term pleasures remind yourself of long term goals and objectives.
CONTROL OVER SIGNALS
We must develop within ourselves the ability to be sensitive to the feelings of others.Such ability is very important for our success in different roles such as a family member,a worker in an organiastion,manager of a bank branch,a friend,a boss,a professional and so on.The more competent and adept we are in recognising the feelings behind other people's signals,the greater will be our controlover the signals we send.If you are adequately sensitive to the feelings of others you will surely be able to regulate your talk,and behaviour towards others to keep them also in a good mood.Thus mood management on the lines explained above is crucial for our success in life.
We must not only try to maintain a balance between a good and bad mood,but also help others in their mood management by being sensitive to their feelings and by means of regulation of our talk,mood and behaviour.Learning the art of managing our mood must be part and parcel of our individual development efforts.[Source-Canara Times dated 5th January ,1997]
The other factors referred to above can be collectively called emotional intelligence.As a first step in the direction of acquiring emotional intelligence we must try to uindersatnd ourselves.This is called self-awareness.Self-awraeness is the capacity to recognise,analyse,and understand our feelings.If we have full awareness of our feelings we can achieve better control over our lives.We must make efforts to understand the feelings which occur without our being consciously aware of them.Somebody might have made a bad remark about you long ago.You might have completely forgotten it.But the same bad remark will cause irritation to you once again if some one points it out to you and makes you to recall to your mind such bad remark.
STARTING POINT
If you dissect your feelings and if you analyse them you will understand yourself well.Once you acquire the neededself-awareness you can build up competence witin yourself to change your feelings.Therefore acquisition of emotional self awareness is the starting point in developing emotional intelligence.Simply stated emotional intelligence is the ability to get rid of a bad mood.
We must try to maintain balance between good mood and bad mood.Our mood keeps on changing depending upon our feelings.Anger changes our mood.It is extremely difficult to control ourselves when we are swept by a strong feeling of sorrow or anger.Although it is difficult to control anger it is surely possible to control the duration of anger.
We can try to reduce anger by staying alone to cool down.When we are in angry mood we can even go for a walkand thus reduce anger.If you are angry on any specific or particular issue then to get rid of anger you can shift your attention to some other issueor topic of relevance.Later once your anger gets melted you can again take up the issue about which you were angry earlier.
If you become angry with a person who has committed a mistake you have to study the reasons for the mistake.If you analyse the reasons you may even discover that mistake was not intentional and at times the same may be for reasons beyond the control of the concerned person.Therefore when you are angry you must attack the reasons for the mistake instaed of attacking the individual.This will help you in reducing your anger.By reducing the period of anger as above ,by shifting your attention to issues other than on which you are angry and by attacking reasons for the mistakes instead of the individual who has committed the mistakes you can surely get rid of your bad mood.Mood management is vital for getting along with others and for happy social life.
SELF EMPOWERMENT
We must adopt the technique of self-empowerment and self-motivation.Empowering ouselves with feelings of enthusiasm,zeal and confidence is very vital for success.We must keep on encouraging ourselves.
High achievers usually empower and motivate themselves with feelings enthusiam,and they do not wait for motivation to come to them from others or from outside sources.A positive mental attitude combined with capacity to empower and motivate ourselves will surely fetch large measure of success.Often we find it difficult to avoid the temtation of immediate and short tem pleasures.In other words we find it difficult to avoid the fascination of immediate pleasure though it may be for very short period or even a moment.We do not think of long term goals.People who can control the impulse can avoid the the risk of going after immediate pleasures.
They will on the other hand aim at fulfilment of long term goals alone.This type of impulse control can be developed over a period of time through constant efforts and practice.When fascinated by short term pleasures remind yourself of long term goals and objectives.
CONTROL OVER SIGNALS
We must develop within ourselves the ability to be sensitive to the feelings of others.Such ability is very important for our success in different roles such as a family member,a worker in an organiastion,manager of a bank branch,a friend,a boss,a professional and so on.The more competent and adept we are in recognising the feelings behind other people's signals,the greater will be our controlover the signals we send.If you are adequately sensitive to the feelings of others you will surely be able to regulate your talk,and behaviour towards others to keep them also in a good mood.Thus mood management on the lines explained above is crucial for our success in life.
We must not only try to maintain a balance between a good and bad mood,but also help others in their mood management by being sensitive to their feelings and by means of regulation of our talk,mood and behaviour.Learning the art of managing our mood must be part and parcel of our individual development efforts.[Source-Canara Times dated 5th January ,1997]
Monday, April 28, 2008
Pursuit of Core Competencies for Success
Core competency is a rare possessionwhich enables an organisation to succeed and show good performance.Core competencies alone provide an organisation the much needed competitive advantage to survive,succeed and grow.Therefore pursuit of core competencies is vital for any organisation for its success and continued good performance.
A few years ago I had an occasion to study the working of a hotel at Bangalore,Mavalli Tiffin Room[MTR].My study had revealed that the wonderful success of MTR was entirely due to the pursuit of core competencies.Customer-focus and customer orieantation,quality culture,maintenance of excellent brand imageand employee care were the core competencies ardently preserved religeously pursued and constantly promoted by Sri Mayyaof MTR.Food served in MTR was of very high quality and every employee was quality-consciuosand was committed to high quality.
Sri Mayya had built up and maintained a top brand image of MTR.Customer-focus and customer care in MTR had significantly contributed toproduct differentiation.The motto of MTR is to give to the employees a great deal and get a great deal from them for the organisation.All the employees are well paid and certain extra facilities such as vehicle facility,housing,provident fund,pension etc are extended to them.
In addition I faund universal empowerment of staff in the hotel.Every one was fully committed to the hoteland all had a stake in the progress and growth of the hotel.Some of the companies have failed on account of the absence of such commitment and stake on the part of employeeswho are thoroughly insecure and who have a coviction that tomorrow they are not there.
I had seen how Sri K.K.Pai as chairman of Syndicate Bank was ardently pursuing core competencies of the bank.Pursuit of core competencies enabled him to show unmatched performance in Syndicate Bank.That is why even today he is the only chairman of the bank being remembered,regarded and widely respected by people..
I am conviced that pursuit of core competencies is very vital for organisational success.Mostly core competencies are intangible in nature and core competencies which can be sustainedhave qualities such as low transferability,low replicability,and very high durability.
Physical assets have very poor score in the above parameters whereas intangible talents of a couple of officers alone the competency can be appropriated to one or a fewn and in such a case the competency can be shifted to some other organisation.
On the other hand if the competency is deeply embedded in the fabrics of the organisation as in the case of MTR referred to earlier it can not be easily be appropriated or shifted.. Capacity for continuous improvement and up-gradationof technology ,innovations,customer care and customer-focus ,good organisational culture ,quality culture,employee care,and staff involvement in the activities of the organisation,good brand image etc are highly durable and intangible core competencies of any organisation which must be preserved and pursued for the success of the organisation[Source-Morning News dated 21st February,1999]
A few years ago I had an occasion to study the working of a hotel at Bangalore,Mavalli Tiffin Room[MTR].My study had revealed that the wonderful success of MTR was entirely due to the pursuit of core competencies.Customer-focus and customer orieantation,quality culture,maintenance of excellent brand imageand employee care were the core competencies ardently preserved religeously pursued and constantly promoted by Sri Mayyaof MTR.Food served in MTR was of very high quality and every employee was quality-consciuosand was committed to high quality.
Sri Mayya had built up and maintained a top brand image of MTR.Customer-focus and customer care in MTR had significantly contributed toproduct differentiation.The motto of MTR is to give to the employees a great deal and get a great deal from them for the organisation.All the employees are well paid and certain extra facilities such as vehicle facility,housing,provident fund,pension etc are extended to them.
In addition I faund universal empowerment of staff in the hotel.Every one was fully committed to the hoteland all had a stake in the progress and growth of the hotel.Some of the companies have failed on account of the absence of such commitment and stake on the part of employeeswho are thoroughly insecure and who have a coviction that tomorrow they are not there.
I had seen how Sri K.K.Pai as chairman of Syndicate Bank was ardently pursuing core competencies of the bank.Pursuit of core competencies enabled him to show unmatched performance in Syndicate Bank.That is why even today he is the only chairman of the bank being remembered,regarded and widely respected by people..
I am conviced that pursuit of core competencies is very vital for organisational success.Mostly core competencies are intangible in nature and core competencies which can be sustainedhave qualities such as low transferability,low replicability,and very high durability.
Physical assets have very poor score in the above parameters whereas intangible talents of a couple of officers alone the competency can be appropriated to one or a fewn and in such a case the competency can be shifted to some other organisation.
On the other hand if the competency is deeply embedded in the fabrics of the organisation as in the case of MTR referred to earlier it can not be easily be appropriated or shifted.. Capacity for continuous improvement and up-gradationof technology ,innovations,customer care and customer-focus ,good organisational culture ,quality culture,employee care,and staff involvement in the activities of the organisation,good brand image etc are highly durable and intangible core competencies of any organisation which must be preserved and pursued for the success of the organisation[Source-Morning News dated 21st February,1999]
Sunday, April 27, 2008
Further Reforms in Financial Sector
The draft report of the committe on financial sector reforms headed by Dr.Raghuram Rajan,Former IMF chief economist and presently professor at Chicago's Graduate School of Business has provided a blue-print for further reforms in financial sector.The committe has explored how growth and inclusion in growth process can be achieved with stability.The financial sector according to the committeehas to move in the same path in which telcom sector has journeyed and accomplished the results now before us.
Undertaking further reforms in the financial sector is not easy.Any effort in the direction of further reforms will be vehemently opposed by the left parties and the trade unions.The existing multiple pressure points may create too many stumbling blocks and stop all efforts at further reforms in financial sector.As a way out the committe has recommended a hundred small steps in lieu of bigger steps at reform.This may help avoid controversies and opposition from the multiple pressure points.
Deregulation,free entry,and competition are vital for efficiency and also for facilitating growth.Further reforms are urgently required to bring more and more people in to the growth processand thereby to the main stream of financial and economic life.According to the committe financial sector reforms can add betweena percentage point and two to existing rate of economic growth.We need larger investments in all sectors to increase growth rate and to maintain growth momentum.Liberalisation of bond market is also necessary to attract investments in certain crucial sectors like infrastructure.
The committe has made several recommendations such as sale of small under-performing state-run banks to another bank or to a strategic investor,liberal permission for take-overs and mergers of banks,allowing holding company structures in banking sector etc.The committe has also recommended setting up of small finance banks for accelerating the process of financial inclusion.In my view instead of trying this new concept it is better to give a full trial to the old concept of local area banks[LABs]The RBIhas not shown any seriousness in exploiting the LAB concept and making it a great success.LABs if properly encouraged can achieve large measure of success.They have the local feel and they are best suited for the task of financial inclusion.The RBI can give a full trail to LAB experiment and allow establishment of LABs in all districts.Private banks are functioning parallel to public sector banks.On identical lines LABs can operate parallel to RRBs.Housing Finance companies with net owned funds of over Rs5 crores,NBFCs which have not defaulted in paying public deposits and have networth of over Rs 5croresetc can be allowed to convert themselves in to LABs.Also private individuals who can bring initial capital of Rs5crores or more can be allowed to set up LABs.LABs with their local feel can be effective instruments for financial inclusion.They can effectively compete with RRBs and as a result the efficiency of RRBs may also increas in the days to come
Undertaking further reforms in the financial sector is not easy.Any effort in the direction of further reforms will be vehemently opposed by the left parties and the trade unions.The existing multiple pressure points may create too many stumbling blocks and stop all efforts at further reforms in financial sector.As a way out the committe has recommended a hundred small steps in lieu of bigger steps at reform.This may help avoid controversies and opposition from the multiple pressure points.
Deregulation,free entry,and competition are vital for efficiency and also for facilitating growth.Further reforms are urgently required to bring more and more people in to the growth processand thereby to the main stream of financial and economic life.According to the committe financial sector reforms can add betweena percentage point and two to existing rate of economic growth.We need larger investments in all sectors to increase growth rate and to maintain growth momentum.Liberalisation of bond market is also necessary to attract investments in certain crucial sectors like infrastructure.
The committe has made several recommendations such as sale of small under-performing state-run banks to another bank or to a strategic investor,liberal permission for take-overs and mergers of banks,allowing holding company structures in banking sector etc.The committe has also recommended setting up of small finance banks for accelerating the process of financial inclusion.In my view instead of trying this new concept it is better to give a full trial to the old concept of local area banks[LABs]The RBIhas not shown any seriousness in exploiting the LAB concept and making it a great success.LABs if properly encouraged can achieve large measure of success.They have the local feel and they are best suited for the task of financial inclusion.The RBI can give a full trail to LAB experiment and allow establishment of LABs in all districts.Private banks are functioning parallel to public sector banks.On identical lines LABs can operate parallel to RRBs.Housing Finance companies with net owned funds of over Rs5 crores,NBFCs which have not defaulted in paying public deposits and have networth of over Rs 5croresetc can be allowed to convert themselves in to LABs.Also private individuals who can bring initial capital of Rs5crores or more can be allowed to set up LABs.LABs with their local feel can be effective instruments for financial inclusion.They can effectively compete with RRBs and as a result the efficiency of RRBs may also increas in the days to come
Saturday, April 26, 2008
BANKING NEEDS COMPLETE PROFESSIONALISATION
Late SMT INDIRA Gandhi the then Prime Minister of Indiawhile speaking to the chief executives of public sector banks in June 1975 observed''banking is a staid and conservative profession .Even so when the aspirations of people are rising bankers should rise to meet the heightened expectations.I know that the people at the top have the commitment but it is the people at the grass root level who should change''
She had thus given expression to the need for professionalisation and professionalism in banking .Subsequently in a conference of bankers the view emerged that bankers must grow out of their institutional loyalties and adopt a code of ethics.It was suggested that there should be separate university courses to produce bankers with appropriate knowledge and skills .The Banking Commission headed by R.G.Saraiya,veteran co-operative banker also suggested professionalisation of banking and the commission laid lot of accent on banking education and research.
Now even after 37 years we find that no concrete steps have been taken in India either to start university courses to produce bankers with needed skills ,knowledge and prfessional orientation or to establish institutions of higher learning in banking.
The National Institute of Bank Management [NIBM]has started a new post graduate programme in banking a few years ago for preparing bankers for tomorrow.But the NIBM alone can not produce required number of banking professionals for Indian banks.By 2012 most of the senior bankers who entered banks in the seventies will go out of their respective banks on attaining the age of superannuation.By that time we need large number of banking professionals with specialisation in various areas of banking .Hence there is urgent need for diversification of MBA and M.COM programmes with specialisation in banking and bank management.Such courses must be launched in all univesities and management institutes.We find that MBAs with specialisation in finance do not have skills specifically required for handling banking operations .Banks which hire MBAs with specialisation in finance have to provide training to them after recruiting them.Hence it is absolutely essential to design MBA courses specifically tailored to meet the requirements of banks.In the new ,diversified MBA programme adequate attention must be paid to development of talents of candidates.Talents refer to the ability to do right things depending upon situation.India must have future bankers with such talents.
In India now again there is stress on mass banking ,that is banking by inclusion.Financial inclusion is now given lot of emphasis by the government and RBI.In the bankers conference held at Kolkata a few years ago there was lot of strees laid on going to the bottom of the pyramid for business expansion.All these will bring about dilution in banking standards unlessthere is professionalisation at all levels in banks.Economic reforms,higher market dynamics,and large scale globalisation demand more professionalismand robust risk mangement system in banks.
With the implementation of Basel-II norms there will be increased accent on good corporate governnance and creation and constant enhancement of share-holder value.In this new scenario we may require banking experts and professionals in such areas as risk management,strategic planning,corporate governance,,strategic credit management,corporate planning,wealth mangement,risk-weighted appraisals,investment banking,treasury operations etc.
All management institutes and universities must give attention to the task of preparing such banking professionals for tomorrow.Both M.Com and MBA programmes must be diversified and M.com[banking]and MBA[bank management]corses must be introduced in all management institutes and uninversities.Banking-specific skills must be included as inputs in these courses..Banks can have tie-ups with management institutes and universities to design courses specific to banking .Banking research must also be given adequate attention in the days ahead.With these steps it will be surely possible to ensure availability of adequate number of banking professionals for tomorrow.With availability of such banking professionals upgradation and professionalisation of banking is possible.To survive,perform and grow Indian banks have to ensure complete professionalisation of their opeartions and functioning in the years ahead.
She had thus given expression to the need for professionalisation and professionalism in banking .Subsequently in a conference of bankers the view emerged that bankers must grow out of their institutional loyalties and adopt a code of ethics.It was suggested that there should be separate university courses to produce bankers with appropriate knowledge and skills .The Banking Commission headed by R.G.Saraiya,veteran co-operative banker also suggested professionalisation of banking and the commission laid lot of accent on banking education and research.
Now even after 37 years we find that no concrete steps have been taken in India either to start university courses to produce bankers with needed skills ,knowledge and prfessional orientation or to establish institutions of higher learning in banking.
The National Institute of Bank Management [NIBM]has started a new post graduate programme in banking a few years ago for preparing bankers for tomorrow.But the NIBM alone can not produce required number of banking professionals for Indian banks.By 2012 most of the senior bankers who entered banks in the seventies will go out of their respective banks on attaining the age of superannuation.By that time we need large number of banking professionals with specialisation in various areas of banking .Hence there is urgent need for diversification of MBA and M.COM programmes with specialisation in banking and bank management.Such courses must be launched in all univesities and management institutes.We find that MBAs with specialisation in finance do not have skills specifically required for handling banking operations .Banks which hire MBAs with specialisation in finance have to provide training to them after recruiting them.Hence it is absolutely essential to design MBA courses specifically tailored to meet the requirements of banks.In the new ,diversified MBA programme adequate attention must be paid to development of talents of candidates.Talents refer to the ability to do right things depending upon situation.India must have future bankers with such talents.
In India now again there is stress on mass banking ,that is banking by inclusion.Financial inclusion is now given lot of emphasis by the government and RBI.In the bankers conference held at Kolkata a few years ago there was lot of strees laid on going to the bottom of the pyramid for business expansion.All these will bring about dilution in banking standards unlessthere is professionalisation at all levels in banks.Economic reforms,higher market dynamics,and large scale globalisation demand more professionalismand robust risk mangement system in banks.
With the implementation of Basel-II norms there will be increased accent on good corporate governnance and creation and constant enhancement of share-holder value.In this new scenario we may require banking experts and professionals in such areas as risk management,strategic planning,corporate governance,,strategic credit management,corporate planning,wealth mangement,risk-weighted appraisals,investment banking,treasury operations etc.
All management institutes and universities must give attention to the task of preparing such banking professionals for tomorrow.Both M.Com and MBA programmes must be diversified and M.com[banking]and MBA[bank management]corses must be introduced in all management institutes and uninversities.Banking-specific skills must be included as inputs in these courses..Banks can have tie-ups with management institutes and universities to design courses specific to banking .Banking research must also be given adequate attention in the days ahead.With these steps it will be surely possible to ensure availability of adequate number of banking professionals for tomorrow.With availability of such banking professionals upgradation and professionalisation of banking is possible.To survive,perform and grow Indian banks have to ensure complete professionalisation of their opeartions and functioning in the years ahead.
Importance of Marketing technique for Good Banking
The concept of marketing is a new concept in Indian banking industry.we have not as yet explored the the ways and means of exploiting the concept.The most important function of market research is to prepare the banks for the inevitable changes that will occur.If banks are to be successful in meeting the formidable competition from other banks and financial institutions they must continue to change and keep themselves in readiness for change.
Banks have to develop and offer those products and services which have a wide market.In other words banks have to develop different ranges of services and products for different groups or sections of people at different times according to changes that may occur.From the point of view of customers two most important areas for constant change are the range of products and attitude of management.
Sophisticated customers want services of diverse types.Major shifts in consumer demand patterns have not only increased the demand for existing services but also made for introduction of several diversified and sophisticated services.
Banks have been expanding the network of branches in all parts of the country .In areas where they set up branches they have to ransack every corner with a view to finding new customers and they can not afford to wait for customers to come to their counters.
TOUGH TASK
Convincing the new clientele of the utility of variuos banking products and services and marketing the products to them is a hercluean task especially in rural and semi-urban ares where majority of people do not know about the importance and utility of banking services and products.In such ares banks have to struggle hard to find market for their business.The responsibility of bringing new customers within banking fold has brought to the fore the importance of adopting marketing techniques in commercial banks.
Market research and the use of marketing techniques are of crucial imprtance in the present day context. Marketing research is important and useful in that it helps identify the future trend of demand for banking services and products.Some of the important factors that may affect the future demand for banking services and products are the attitude of customers towards bank credit,the security,desire for some other form of assistance etc.Banks have to gather information about theseand other important trends so that they may plan for introduction of new products and services on the basis of such data and information.
Market research also enables banks to select those projects and schemes which fructfy in the shortest possible time.Marketing research helps banks in identifying clients and projects with in-built capacity to grow.Also research in marketing and use of marketing techniques help eliminate wastage in developmental efforts.To put the whole thing in a nutshell market research has the merit of not only identifying the present potentialities of the markets butalso forecasting their future shapes.
American View
According to American Marketing Association marketing is the systematic gathering ,recording,and anlysing of data about problems relating to marketing of goods and services .Bank marketing is therefore the technique of gathering and analysing data pertaining to problems connected with marketing of banking products and services.
The application of the concept of marketing was almost a novely till recently in Indian banking.Utilisation of the techniques of marketing will go a long way in enabling banks to develop their business on scientific lines and to provide the right type of services and products.
The management policies relating to credit,deposits and other products must be customer-oriented.Customer orientation and customer-focus are vital in marketing banking products.Marketing research will enable banks to ensure that their policies are customer-oriented.Market research enables banks to understand the preferences of customers and other market conditions.For the purpose of understanding customer needs and preferences the attitudes of customers have to be studied.
For studying this the total population must be divided in to groups say poor classes,middle income groups,professionals,salary earners,traders etc it is also possible to divide the population into urban and rural population.Thus the usual method is to divide them into important groups and each group has certain attributes which are common for the group.These common characteristics are significant from the point of view of marketing.Division of the market is useful for banks because the credit needs and service needs of different groups are varied.
The services that will have to be developed by banks to satisfy the needs of different groups may not be identical.Therefore the attitudes of customers have to be studied grup-wise in order that the right type of products and services are devised and developed for satisfying the requirements of a given class of customers.Thus customer-orientation is the most important facet of bank marketing and hence the primary focus of marketing research is the customer.
In order to understand his customers the bank marketer must concentrate on all aspects of need satisfaction process.This involves the consideration of the customer's needs,and desires,his buying motives,his purchasing behaviour,and satisfaction obtained.Under the fast changing circumstances it is important to complete a survey within a short time.It is also important to initiate immediate action after the survey so that potentialities discovered do not become obsolete.
SOME METHODS
We may employ the method of sending sending questionnaires and collecting replies from customers.This is the most easy way of conducting market research.But here there is no guarantee that that the addressees will indicate their preferences correctly and truly during the course of their replies . Most of the addressees may not reply at all.
we may also employ the technique of advertising research for the purpose.Banks must decide upon the aspects of a given service which must be publicised and publicise only those aspects.Banking services rendered by all banks are the same and hence marketing techniques have got to strive hard for ''service-differentiation''and creating a brand image.Potential customers because they normally have limited experience upon which to base the selection of a bank
must rely on their subjective impressions of various banks.Image creation is therefore a marketing activity for banks.
For the purpose of creating an image consistent with bank's objectives and policies bank managements must research the attitudes of customers on the lines indicated earlier.Public relation and image creation activities will have to be based on factual data and not on subjective opinions.Advertising can be used to overcome weaknesses revealed by attitude research.
Also advertising can capitalise on the strengths discovered by research.In short a clear understanding of how customers view the bank today will make the job of building tomorrow's bank image easier.So also projecting an appropriate image of the bank on the local population is also essentialfor business success.Designing and styling of branches must suit the tastes of local population.This will help buid a good and favourable public image.
From the above discussion it is clear that marketing is part and parcel of good bankig.The successful banker must no longer guess his customer's needsand offer services which he thinks will meet their hypothesised needs.The needs and desires of customers must be researched and only those services which satisfy their needs must be providedUltimately any business survives and flourishes only if it satisfies the needs of customers.The practice followed in America is worthy of emulation
All American banks have established separate marketing departments ,the heads of which usually have direct access to the chief executive.They also have other deprtments like economic research and planning.These deprtments are main sources of new ideas.They develop the most effective method of presenting new services.They forecast future trends in customer attitudesand they study population changes to facilitate the most effective coverage by bank branches.We have to learn from the banks of united States of America regarding how good image akin to that of a good bank can be created and mainained on an enduring basis.
In the U.S banks keep their image uptodatein a quickly changing worldand maintain their appeal to the man in the street.Much of credit for this goes to their effective advertising.It is said that American banks are capable of dressing up and presenting mutton as lamb.Indian banks have started to use marketing technique in post reform era .But they are yet to develop truly integrated customer-oriented marketing programmes which are essence of the marketing concept.
AGREED WAY
It is only through information provided by research that effective marketing programme will be developed.The shortcoming of Indian banking could be remedied by applying to it the marketing conceptwhich it lacks.This was agrred by all concerned in post reform period.For attracting customers in new areas marketing research and use of marketing techniques are absolutely necessary.The emphasis today is not merely to offer banking products and services but to go out and sell them.Therefore marketing is fundamental to good banking and market research being the integral part of good marketing must also be given adequate importance.
[PUBLISHED IN FINANCIAL EXPRESS DATED JULY22,1973]
Banks have to develop and offer those products and services which have a wide market.In other words banks have to develop different ranges of services and products for different groups or sections of people at different times according to changes that may occur.From the point of view of customers two most important areas for constant change are the range of products and attitude of management.
Sophisticated customers want services of diverse types.Major shifts in consumer demand patterns have not only increased the demand for existing services but also made for introduction of several diversified and sophisticated services.
Banks have been expanding the network of branches in all parts of the country .In areas where they set up branches they have to ransack every corner with a view to finding new customers and they can not afford to wait for customers to come to their counters.
TOUGH TASK
Convincing the new clientele of the utility of variuos banking products and services and marketing the products to them is a hercluean task especially in rural and semi-urban ares where majority of people do not know about the importance and utility of banking services and products.In such ares banks have to struggle hard to find market for their business.The responsibility of bringing new customers within banking fold has brought to the fore the importance of adopting marketing techniques in commercial banks.
Market research and the use of marketing techniques are of crucial imprtance in the present day context. Marketing research is important and useful in that it helps identify the future trend of demand for banking services and products.Some of the important factors that may affect the future demand for banking services and products are the attitude of customers towards bank credit,the security,desire for some other form of assistance etc.Banks have to gather information about theseand other important trends so that they may plan for introduction of new products and services on the basis of such data and information.
Market research also enables banks to select those projects and schemes which fructfy in the shortest possible time.Marketing research helps banks in identifying clients and projects with in-built capacity to grow.Also research in marketing and use of marketing techniques help eliminate wastage in developmental efforts.To put the whole thing in a nutshell market research has the merit of not only identifying the present potentialities of the markets butalso forecasting their future shapes.
American View
According to American Marketing Association marketing is the systematic gathering ,recording,and anlysing of data about problems relating to marketing of goods and services .Bank marketing is therefore the technique of gathering and analysing data pertaining to problems connected with marketing of banking products and services.
The application of the concept of marketing was almost a novely till recently in Indian banking.Utilisation of the techniques of marketing will go a long way in enabling banks to develop their business on scientific lines and to provide the right type of services and products.
The management policies relating to credit,deposits and other products must be customer-oriented.Customer orientation and customer-focus are vital in marketing banking products.Marketing research will enable banks to ensure that their policies are customer-oriented.Market research enables banks to understand the preferences of customers and other market conditions.For the purpose of understanding customer needs and preferences the attitudes of customers have to be studied.
For studying this the total population must be divided in to groups say poor classes,middle income groups,professionals,salary earners,traders etc it is also possible to divide the population into urban and rural population.Thus the usual method is to divide them into important groups and each group has certain attributes which are common for the group.These common characteristics are significant from the point of view of marketing.Division of the market is useful for banks because the credit needs and service needs of different groups are varied.
The services that will have to be developed by banks to satisfy the needs of different groups may not be identical.Therefore the attitudes of customers have to be studied grup-wise in order that the right type of products and services are devised and developed for satisfying the requirements of a given class of customers.Thus customer-orientation is the most important facet of bank marketing and hence the primary focus of marketing research is the customer.
In order to understand his customers the bank marketer must concentrate on all aspects of need satisfaction process.This involves the consideration of the customer's needs,and desires,his buying motives,his purchasing behaviour,and satisfaction obtained.Under the fast changing circumstances it is important to complete a survey within a short time.It is also important to initiate immediate action after the survey so that potentialities discovered do not become obsolete.
SOME METHODS
We may employ the method of sending sending questionnaires and collecting replies from customers.This is the most easy way of conducting market research.But here there is no guarantee that that the addressees will indicate their preferences correctly and truly during the course of their replies . Most of the addressees may not reply at all.
we may also employ the technique of advertising research for the purpose.Banks must decide upon the aspects of a given service which must be publicised and publicise only those aspects.Banking services rendered by all banks are the same and hence marketing techniques have got to strive hard for ''service-differentiation''and creating a brand image.Potential customers because they normally have limited experience upon which to base the selection of a bank
must rely on their subjective impressions of various banks.Image creation is therefore a marketing activity for banks.
For the purpose of creating an image consistent with bank's objectives and policies bank managements must research the attitudes of customers on the lines indicated earlier.Public relation and image creation activities will have to be based on factual data and not on subjective opinions.Advertising can be used to overcome weaknesses revealed by attitude research.
Also advertising can capitalise on the strengths discovered by research.In short a clear understanding of how customers view the bank today will make the job of building tomorrow's bank image easier.So also projecting an appropriate image of the bank on the local population is also essentialfor business success.Designing and styling of branches must suit the tastes of local population.This will help buid a good and favourable public image.
From the above discussion it is clear that marketing is part and parcel of good bankig.The successful banker must no longer guess his customer's needsand offer services which he thinks will meet their hypothesised needs.The needs and desires of customers must be researched and only those services which satisfy their needs must be providedUltimately any business survives and flourishes only if it satisfies the needs of customers.The practice followed in America is worthy of emulation
All American banks have established separate marketing departments ,the heads of which usually have direct access to the chief executive.They also have other deprtments like economic research and planning.These deprtments are main sources of new ideas.They develop the most effective method of presenting new services.They forecast future trends in customer attitudesand they study population changes to facilitate the most effective coverage by bank branches.We have to learn from the banks of united States of America regarding how good image akin to that of a good bank can be created and mainained on an enduring basis.
In the U.S banks keep their image uptodatein a quickly changing worldand maintain their appeal to the man in the street.Much of credit for this goes to their effective advertising.It is said that American banks are capable of dressing up and presenting mutton as lamb.Indian banks have started to use marketing technique in post reform era .But they are yet to develop truly integrated customer-oriented marketing programmes which are essence of the marketing concept.
AGREED WAY
It is only through information provided by research that effective marketing programme will be developed.The shortcoming of Indian banking could be remedied by applying to it the marketing conceptwhich it lacks.This was agrred by all concerned in post reform period.For attracting customers in new areas marketing research and use of marketing techniques are absolutely necessary.The emphasis today is not merely to offer banking products and services but to go out and sell them.Therefore marketing is fundamental to good banking and market research being the integral part of good marketing must also be given adequate importance.
[PUBLISHED IN FINANCIAL EXPRESS DATED JULY22,1973]
Friday, April 25, 2008
BANKING ON HUMAN VALUES
IN the seventies and eighties the emphasis was on social and communty banking.Banks had to satisfy the canon of social purpose along with tarditional canons of liquidity,safety and profitability.They had to involve themselves very actively in the implementation of social objectives and in their anxiety to fulfil social objectives banks did not give adequate attention to their own soundness and operational efficiency and this resulted in dilution of banking standards.
FORMIDABLE TASK
Under the liberalised environment one of the prime objectives of banks is to increase profitability through ensuring their own soundness and operational efficiency.The efforts at liberalisation will surely bring about changes of a far reaching nature in operational policies of banks.Banking in India has always been labour-intensive industry.The changes,reforms business strategies and diversification efforts have to be implemented through the staff and hence effective human resource management alone can help banks in this regard.
Infact this will be a formidable task for banks during this decade and in the decades to come.Banks have to adopt some sort of ''involve and evolve''approach as regards human resoure management to achieve the desired measure of success in facing the emerging banking challenges.We have to give up the belief that people are not interested in work.This thinking is a clear manifestation of distrust of people-an incorrect approach which is not workable and has to be abandoned.In the seventies and eighties highly educated and meritorious people entered banks as employees.As a philosophy therefore personnel management today must proceed on the basis that employees are basically good ,intelligent,sincere and capable of good work.What is needed today is a total and complete orientation of the approach of banks to the ''people system''.Only with such orientation can they face the forthcoming challenges resolutely and with success.
TRANSPARENCY
Personnel management hencefothshould not confine itselfto traditionalfunctions such as service conditions,transfers,and placements,promotions etc alone...Banks have to adopt a pro-active human resource mangement system.They have to build up organisational capabilities to creatively destroy the old systems and approachesand evolve better systems,policies and practices.The human resourec mangement policies to be evolved and adopted must be transparent in nature.People must be made to feel that work is an opportunity provided to them.In all decisions such as transfers and placements,rewards,promotions,etc justice and fairplay must be visible.Such transparency has to be achieved at the earliest.The accent in the entire human resource mangement policy must be on developing people by means of giving opportunities to satff members for participation and growth which would also constitute an important basis for their self development and professional advance.There must be an open management system involving sharing informationa as a resource brain storming sessions with staff members and pooling their ideas in the interests of banks growth and motivation of staff by recognising their workand by treating them as a vital resource.
SHARING INFORMATION
The earlier hire and fire approach has no place now.Today no officer can consider himself a boss.He has to function only as a leader of a team.The system of sharing information will bring about a sense of equality,mutuality,inter-dependance and one-ness which are very valuable from the point of view of motivation of employees.
Armed with information the receiver of information can discharge his responsibilities with better understanding and increased confidence.Coming days and years will see only information-based mangement.Such being the case the best way to motivate the employees is to share inside information with staff and also share with them information concerning the external environment .Such information -sharing has to be encouraged.The field-level staff should share the data relating to field operations with superior officers and higher level officers.With mutuality and respect so developed the organisation can perform better through better motivation ofemployeesand better formulation of strategies on the basis of shared information.Highly qualified people who are inside the banking institutions today are real challenge-seekers.They desire newer and newer opportunities for displaying their abilities and competence.Rigid rules relating to postings and placements come in the way of utilisation of strengths of officers and staff.Even economists and law officers who are specialised are forced to go to branchesand operational people are made to handle the job of economists in some cases.Excellent performers in branches are compelled to come to administrative offices .As a result we are contributing to non-performance in both administrative and operatinal lines.This type of man mangement was being practised by many banks in the nineties and even now some banks are yet to reform and tone up their personnel management practices.
SELF MOTIVATION
The task of human resource management today lies in making people self-motivated by a conscious process of exposing them to to various challenges and opportunities and by making them enjoy a sense of achievement on the job itself.It is important to think that law officer or economist will enjoy the job as a branch manager.Personnel management has to facilitate the projection by each individual staff member of his professional status regardless of his scale and cadre and recognise his contribution.
These are exactly the areas where personnel management has to be imaginative and set in train appropriate measures.Reckless and immature handling of staff members will only bring about alround frustration.The responsibility of HRD function lies in developing people,and making them derive satisfaction from their jobs.
Fundamentally every employee seeks a challenge in his work.Employees whose jobs provide adequate scope for facing challenges are more satisfied ;they find something new and there is scope for them to make a contribution in the process of meeting the challenge.There is also evidence to show that the organisations where the corporate policies are fair nad just the employees are generally more satisfied and motivated.
The method used in the past to motivate nad enthuse the workers were confined to economic incentives security of employment and welfare measures.These are no doubt important and employees do respond positively to such measures.But it is not possible to achieve enduring motivation and optimum results through these measures.Also it is not possible to employ such measures in public sector banks because of standardisation of service conditions and restriction on giving benefits beyond what are prescribed.We have to appreciate that an employee is not only the ''economic''man but also a ''social''man and ''psychological''man.That is what makes the human resource more complex and unpedictable when compared to other resources at the disposal of the mangement.This does not mean that human beings are unmanageable.Once above truism is accepted and reflected in the policies of the organisation other changes are relatively easy to bring about .
UTILISATION OF STRENGTHS
The man managing responsibility consists in utilising strengths available in employees rather than trying to shift them from one office to another.An employee who is not good in field work at the branch level may be excellent in an administrative office.An economist posted to a branch in the process of implementation of rigid transfer rules may not be a performer there.But he will be a performer as an economist.Similarly an excellent branch manager may not enjoy work in an administrative office.Therefore the success of human resource mangement function lies in utilisation of services of employees depending upon their strength.Transfers for the sake of transfers on the basis of rigid rules will only eliminate the opportunities that are available for utilising strengths.Banks must identify the skills available and take steps to to make use of the skills.People who are having the basic skills can be developed thruogh training and they can be used for handling new functions to be taken up on account of diversification in the liberalised environment.Steps must be taken to reorient the training system also.
It is found that employyes usually work at 20 to 30 percent of their ability.Given the necessary motivation they can work even up to 80 percent of their ability.Therefore the main role of human resource mangement must be to motivate people at all levels so as to derive better performance and improved productivity from them.In addition to developing employees individually attention must be given to developing groups of employees like committes say customer service committe,task force ,teams etc.Development of such groups of individuals must be from the point of view of incresaing collaboration amongst people working in the organiastion and increasing their effectiveness.
Finally different departments and offices and the bank as a whole must also be covered by development.This development would involve developing a climate which is conducive for developing renewed capability in the organisation.Such a concept of development will focus on the different units in the organisation for different purposes.The individual employee and his role are important in the organisation.Also the role of departments ,units etc are important.The cocept of development must cover both the aspects.Development in this sense becomes an effort which has analysing role,involving key performance areas ,critical attributes,and job evaluation matching the role and person covering selection and recruitment,placements,promotions etc,developing the person in the role which includes performance appraisal,feedback,and counselling,potential appraisal,career developmentand career planning etc.
OPEN SYSTEM
The system of sharing information which has its own motivational overtones must percolate to the grass root level of branches.Each level in the organiastin must have a system of sharing information.Nothing should be kept back from employees.If there is a tendency to keep anything secret there will be an atmosphere of suspicion..Such suspicion on the part of employees will act as a constraint to good performance and good management.Therefore there must be an open system wherein information has to be shared as a resource so that nobody can have recourse to rumours and false information.
Motivation is most vital input in human resource mangement in the present day context.The task of man management can not be left to personnel department alone.It has to be handled at every level in the organisation.Positive action like providing giudance,encouragement,sincere appreciation,and honest praise for the slightest improvement and for every improvement goes a long way in mmotivating people.At the branch level,departmental level,or other unit levels leaders like managers and group heads must not engage in gossip with their colleagues.They must not give vent to their personal frustration.As far as possible cultural and social activities must be encouraged.A lot of attention must be given to employees to see that they are involved.When so much attention is bestowed on them they will surely feel they are important.As aresult they will feel motivated,their involvement will increase and they will perform better.Planning is important not only at the corporate level ,but also at unit level and the level of employees.Given the necessary environment and support people begin to satisfy their esteem and self-actualising needs by participating in the planning,organising,motivating,and controlling their own tasks.The human resource mangement must be so organised as to ensure that it is positioned towards need-satisfaction of employees.Only such type of human resource mangement can enable banks to face the challenges emerging from time to time as a result of liberalstianand banking reforms.Banks must re-organise their human resourece mangemrnt departments and see that they adopt a pro-active human resource mangement system .They have to re-orient their approach on the lines explained earlier.Banks must also adopt startegic planning and performance budgeting system must be integrated with the strategic planning process.This should be supplemented by adoption of a strategic human resource mangement system .Armed with these banks can surely face the challenges emerging from time to time and perform well.
[Published in FORTUNE INDIA February,16-28,1993]
FORMIDABLE TASK
Under the liberalised environment one of the prime objectives of banks is to increase profitability through ensuring their own soundness and operational efficiency.The efforts at liberalisation will surely bring about changes of a far reaching nature in operational policies of banks.Banking in India has always been labour-intensive industry.The changes,reforms business strategies and diversification efforts have to be implemented through the staff and hence effective human resource management alone can help banks in this regard.
Infact this will be a formidable task for banks during this decade and in the decades to come.Banks have to adopt some sort of ''involve and evolve''approach as regards human resoure management to achieve the desired measure of success in facing the emerging banking challenges.We have to give up the belief that people are not interested in work.This thinking is a clear manifestation of distrust of people-an incorrect approach which is not workable and has to be abandoned.In the seventies and eighties highly educated and meritorious people entered banks as employees.As a philosophy therefore personnel management today must proceed on the basis that employees are basically good ,intelligent,sincere and capable of good work.What is needed today is a total and complete orientation of the approach of banks to the ''people system''.Only with such orientation can they face the forthcoming challenges resolutely and with success.
TRANSPARENCY
Personnel management hencefothshould not confine itselfto traditionalfunctions such as service conditions,transfers,and placements,promotions etc alone...Banks have to adopt a pro-active human resource mangement system.They have to build up organisational capabilities to creatively destroy the old systems and approachesand evolve better systems,policies and practices.The human resourec mangement policies to be evolved and adopted must be transparent in nature.People must be made to feel that work is an opportunity provided to them.In all decisions such as transfers and placements,rewards,promotions,etc justice and fairplay must be visible.Such transparency has to be achieved at the earliest.The accent in the entire human resource mangement policy must be on developing people by means of giving opportunities to satff members for participation and growth which would also constitute an important basis for their self development and professional advance.There must be an open management system involving sharing informationa as a resource brain storming sessions with staff members and pooling their ideas in the interests of banks growth and motivation of staff by recognising their workand by treating them as a vital resource.
SHARING INFORMATION
The earlier hire and fire approach has no place now.Today no officer can consider himself a boss.He has to function only as a leader of a team.The system of sharing information will bring about a sense of equality,mutuality,inter-dependance and one-ness which are very valuable from the point of view of motivation of employees.
Armed with information the receiver of information can discharge his responsibilities with better understanding and increased confidence.Coming days and years will see only information-based mangement.Such being the case the best way to motivate the employees is to share inside information with staff and also share with them information concerning the external environment .Such information -sharing has to be encouraged.The field-level staff should share the data relating to field operations with superior officers and higher level officers.With mutuality and respect so developed the organisation can perform better through better motivation ofemployeesand better formulation of strategies on the basis of shared information.Highly qualified people who are inside the banking institutions today are real challenge-seekers.They desire newer and newer opportunities for displaying their abilities and competence.Rigid rules relating to postings and placements come in the way of utilisation of strengths of officers and staff.Even economists and law officers who are specialised are forced to go to branchesand operational people are made to handle the job of economists in some cases.Excellent performers in branches are compelled to come to administrative offices .As a result we are contributing to non-performance in both administrative and operatinal lines.This type of man mangement was being practised by many banks in the nineties and even now some banks are yet to reform and tone up their personnel management practices.
SELF MOTIVATION
The task of human resource management today lies in making people self-motivated by a conscious process of exposing them to to various challenges and opportunities and by making them enjoy a sense of achievement on the job itself.It is important to think that law officer or economist will enjoy the job as a branch manager.Personnel management has to facilitate the projection by each individual staff member of his professional status regardless of his scale and cadre and recognise his contribution.
These are exactly the areas where personnel management has to be imaginative and set in train appropriate measures.Reckless and immature handling of staff members will only bring about alround frustration.The responsibility of HRD function lies in developing people,and making them derive satisfaction from their jobs.
Fundamentally every employee seeks a challenge in his work.Employees whose jobs provide adequate scope for facing challenges are more satisfied ;they find something new and there is scope for them to make a contribution in the process of meeting the challenge.There is also evidence to show that the organisations where the corporate policies are fair nad just the employees are generally more satisfied and motivated.
The method used in the past to motivate nad enthuse the workers were confined to economic incentives security of employment and welfare measures.These are no doubt important and employees do respond positively to such measures.But it is not possible to achieve enduring motivation and optimum results through these measures.Also it is not possible to employ such measures in public sector banks because of standardisation of service conditions and restriction on giving benefits beyond what are prescribed.We have to appreciate that an employee is not only the ''economic''man but also a ''social''man and ''psychological''man.That is what makes the human resource more complex and unpedictable when compared to other resources at the disposal of the mangement.This does not mean that human beings are unmanageable.Once above truism is accepted and reflected in the policies of the organisation other changes are relatively easy to bring about .
UTILISATION OF STRENGTHS
The man managing responsibility consists in utilising strengths available in employees rather than trying to shift them from one office to another.An employee who is not good in field work at the branch level may be excellent in an administrative office.An economist posted to a branch in the process of implementation of rigid transfer rules may not be a performer there.But he will be a performer as an economist.Similarly an excellent branch manager may not enjoy work in an administrative office.Therefore the success of human resource mangement function lies in utilisation of services of employees depending upon their strength.Transfers for the sake of transfers on the basis of rigid rules will only eliminate the opportunities that are available for utilising strengths.Banks must identify the skills available and take steps to to make use of the skills.People who are having the basic skills can be developed thruogh training and they can be used for handling new functions to be taken up on account of diversification in the liberalised environment.Steps must be taken to reorient the training system also.
It is found that employyes usually work at 20 to 30 percent of their ability.Given the necessary motivation they can work even up to 80 percent of their ability.Therefore the main role of human resource mangement must be to motivate people at all levels so as to derive better performance and improved productivity from them.In addition to developing employees individually attention must be given to developing groups of employees like committes say customer service committe,task force ,teams etc.Development of such groups of individuals must be from the point of view of incresaing collaboration amongst people working in the organiastion and increasing their effectiveness.
Finally different departments and offices and the bank as a whole must also be covered by development.This development would involve developing a climate which is conducive for developing renewed capability in the organisation.Such a concept of development will focus on the different units in the organisation for different purposes.The individual employee and his role are important in the organisation.Also the role of departments ,units etc are important.The cocept of development must cover both the aspects.Development in this sense becomes an effort which has analysing role,involving key performance areas ,critical attributes,and job evaluation matching the role and person covering selection and recruitment,placements,promotions etc,developing the person in the role which includes performance appraisal,feedback,and counselling,potential appraisal,career developmentand career planning etc.
OPEN SYSTEM
The system of sharing information which has its own motivational overtones must percolate to the grass root level of branches.Each level in the organiastin must have a system of sharing information.Nothing should be kept back from employees.If there is a tendency to keep anything secret there will be an atmosphere of suspicion..Such suspicion on the part of employees will act as a constraint to good performance and good management.Therefore there must be an open system wherein information has to be shared as a resource so that nobody can have recourse to rumours and false information.
Motivation is most vital input in human resource mangement in the present day context.The task of man management can not be left to personnel department alone.It has to be handled at every level in the organisation.Positive action like providing giudance,encouragement,sincere appreciation,and honest praise for the slightest improvement and for every improvement goes a long way in mmotivating people.At the branch level,departmental level,or other unit levels leaders like managers and group heads must not engage in gossip with their colleagues.They must not give vent to their personal frustration.As far as possible cultural and social activities must be encouraged.A lot of attention must be given to employees to see that they are involved.When so much attention is bestowed on them they will surely feel they are important.As aresult they will feel motivated,their involvement will increase and they will perform better.Planning is important not only at the corporate level ,but also at unit level and the level of employees.Given the necessary environment and support people begin to satisfy their esteem and self-actualising needs by participating in the planning,organising,motivating,and controlling their own tasks.The human resource mangement must be so organised as to ensure that it is positioned towards need-satisfaction of employees.Only such type of human resource mangement can enable banks to face the challenges emerging from time to time as a result of liberalstianand banking reforms.Banks must re-organise their human resourece mangemrnt departments and see that they adopt a pro-active human resource mangement system .They have to re-orient their approach on the lines explained earlier.Banks must also adopt startegic planning and performance budgeting system must be integrated with the strategic planning process.This should be supplemented by adoption of a strategic human resource mangement system .Armed with these banks can surely face the challenges emerging from time to time and perform well.
[Published in FORTUNE INDIA February,16-28,1993]
Saturday, April 19, 2008
AMMANNAYA's SOME FIRSTS
1.First doctorate in Banking from Mangalore University.
2First Performance Budget of Syndicate Bank was prepared by him.
3.First chairman of Varada Grameena Bank to introduce long range planning and to achieve magnificent turnaround of the bank.He wiped out accumulated losses of crores of Rupees and achieved net profit of large amount for the first time in that bank.
4.He built own HEAD OFFICE building for Varada Grameena Bank during his stewardship as chairman in that bank.
5.BIRD ,Lucknow had prepared a case study regardind his banking experiments and achievementsand Taranga,noted Kannada weekly had published cover feature regarding his rare banking experiments and accomplishments
2First Performance Budget of Syndicate Bank was prepared by him.
3.First chairman of Varada Grameena Bank to introduce long range planning and to achieve magnificent turnaround of the bank.He wiped out accumulated losses of crores of Rupees and achieved net profit of large amount for the first time in that bank.
4.He built own HEAD OFFICE building for Varada Grameena Bank during his stewardship as chairman in that bank.
5.BIRD ,Lucknow had prepared a case study regardind his banking experiments and achievementsand Taranga,noted Kannada weekly had published cover feature regarding his rare banking experiments and accomplishments
Wednesday, April 16, 2008
INFLATION-MESS OF OUR MAKING
The govenment has allowed inflation to grow in an uncontrolled manner.It did not consider pension reforms and the present pension system whereunder pension is mostly unearned in the case of retired bureaucracy has also fuelled inflation.
Salary hikes granted from time to time on the basis of pay commision recommendations without there being commensurate increase in work efficiency and productivity is also responsible for growth of inflation.The incremental portion of salary represents unearned salary and is inflationary in nature.
During Vajapayee government the retirement age of all government staff and public sector bank officers was increased to 60.Most of such staff who would have retired at 58 did not contribute much by way of completion of workand results after their earlier retirement age of 58and their salary,being not wholly earned contributed to inflation.
The corporate sector has also played a significant role in cultivating and growing inflation.Huge hikes in salary and incentives to to senior executives and CEOs has also contributed much to inflation as it led to a culture of unwanted consumption.
Inorder to control inflation the government must take steps to eliminate all kinds of compensation that is in effect unearned and all hikes of salary must be accompanied by commensurate increase in work efficiency and productivity.
Instead of huge hikes in pay scales it is better to consider productivity-linked incentives and productivity-linked increments to government staff also.It is also advisable to implement pension reforms and employee contributory pensions must be ipmlemented fortwith.Corruption and bribes must also be eliminated.
Along-side reforms on salary and compensation front as above the government must initiate its significant interventions on production side and the RBI may also be involved in such efforts.
What is required to-day is augmentation of supplies of all commodities-food and non-food -through increase in production and through expansion of capacities in the manufacturing sector.[published in Business Line dated 17th April 2008]
Salary hikes granted from time to time on the basis of pay commision recommendations without there being commensurate increase in work efficiency and productivity is also responsible for growth of inflation.The incremental portion of salary represents unearned salary and is inflationary in nature.
During Vajapayee government the retirement age of all government staff and public sector bank officers was increased to 60.Most of such staff who would have retired at 58 did not contribute much by way of completion of workand results after their earlier retirement age of 58and their salary,being not wholly earned contributed to inflation.
The corporate sector has also played a significant role in cultivating and growing inflation.Huge hikes in salary and incentives to to senior executives and CEOs has also contributed much to inflation as it led to a culture of unwanted consumption.
Inorder to control inflation the government must take steps to eliminate all kinds of compensation that is in effect unearned and all hikes of salary must be accompanied by commensurate increase in work efficiency and productivity.
Instead of huge hikes in pay scales it is better to consider productivity-linked incentives and productivity-linked increments to government staff also.It is also advisable to implement pension reforms and employee contributory pensions must be ipmlemented fortwith.Corruption and bribes must also be eliminated.
Along-side reforms on salary and compensation front as above the government must initiate its significant interventions on production side and the RBI may also be involved in such efforts.
What is required to-day is augmentation of supplies of all commodities-food and non-food -through increase in production and through expansion of capacities in the manufacturing sector.[published in Business Line dated 17th April 2008]
Thursday, April 10, 2008
Runaway Inflation
Inflation has gone up to 7percent,the highestin the last one year and a half.The poorer sections of society are the worst hit by the spurt in food prices.The government has resorted to a series of measures such as ban on export of certain items and reduction of import duty on others,but none of these have had the desired impact.Our food security is at riskand galloping inflation has emerged as a major macro-economic issue requiring focussed addressing.If left unchecked it may even threaten and disturb the economy's fiscal equilibrium.The fast rise in the prices of food grains ,edible oils,pulses,vegetables etc coupled with unprecedented rise in prices of such commodities as steel and cement have pushed inflation to a new high.
The real cause is the mismatch between demand and supply not only in India but globally.The government must take measures to contain inflationat a reasonable leveland apply a combination of measures while firming up long-range strategies.Prudent fiscal measuresand a balanced monetary and credit policy are vital for this purpose.Capital market in India has almost fully dried up or is on the verge of becoming so.Also there is a near complete stoppage of inflow of cheap funds from international sources.Cost of bank credit has gone up.
All these have adversely affected production and manufacturing.Thus at this juncture what we need is a cheap money policy.The RBI must have on earlier occasions reduced interest rates by cutting CRR or or other rates like repo rate etc.But the central bank seems to have forgotten the supply side completely.
The RBI policy particularly the high rate of interest has discouraged production of all commodities.Now we need to focus on augmenting supply of all articles-food and non-food.Abundance has to be created and mismatch between demand and supply eliminated.For this the RBI must adopt a cheap money policy as inflation has not been demand-driven but has its genesis in short supply.
Both the government and RBI must initiate supply-side interventions and adopt prudent fiscal and credit policies.The accent must be on agriculture and production of more and more food grains.For this the focus should be on providing farmers bank loans at affordable rates,improving farm productivityand removal of transport and other logistics-related constraints.Inflation control needs concerted and constant efforts by all concerned-the centre,states and the apex bank.
[Published in Business Line of 10th April 2008]
The real cause is the mismatch between demand and supply not only in India but globally.The government must take measures to contain inflationat a reasonable leveland apply a combination of measures while firming up long-range strategies.Prudent fiscal measuresand a balanced monetary and credit policy are vital for this purpose.Capital market in India has almost fully dried up or is on the verge of becoming so.Also there is a near complete stoppage of inflow of cheap funds from international sources.Cost of bank credit has gone up.
All these have adversely affected production and manufacturing.Thus at this juncture what we need is a cheap money policy.The RBI must have on earlier occasions reduced interest rates by cutting CRR or or other rates like repo rate etc.But the central bank seems to have forgotten the supply side completely.
The RBI policy particularly the high rate of interest has discouraged production of all commodities.Now we need to focus on augmenting supply of all articles-food and non-food.Abundance has to be created and mismatch between demand and supply eliminated.For this the RBI must adopt a cheap money policy as inflation has not been demand-driven but has its genesis in short supply.
Both the government and RBI must initiate supply-side interventions and adopt prudent fiscal and credit policies.The accent must be on agriculture and production of more and more food grains.For this the focus should be on providing farmers bank loans at affordable rates,improving farm productivityand removal of transport and other logistics-related constraints.Inflation control needs concerted and constant efforts by all concerned-the centre,states and the apex bank.
[Published in Business Line of 10th April 2008]
Sunday, April 6, 2008
Bank Mergers
Bank Mergers are vital from the point of view of strengthening banks and their balace sheets.Indian banks are yet to grow to become banks of global size.Mergers of banks will benefit all stake holders.Leveraging union powerto get better compensation would serve the employees'better than opposing merger of banks.Unions generally indiscriminately oppose new initiatives.In 1995-96 before the dead-line fixed for submitting one's option on pension the unions of PSBswent round pressurising staff not to opt for pension as the benefit thereunder would be much less than PF benefit.Most of the younger staff who going by the advice of Unions did not opt for pension are now suffering for want of pension.
Executives,officers and staffin new private banks are now getting more salary and incentive than the staff of PSBs.Instead of opposing merger of banks ,particularly associate banks of SBI group with SBIthe employees must welcome the merger to derive economies of scale.A giant SBI that is going to be created following merger can be a global player.The capacity to pay of such a giant bank will be enhanced.Bank mergers have advantages such as economies of scale,enhanced public image,better size required for amassing volumes of business,cost cutting through elimination of duplications and enhanced financial strengthand stronger balance sheet.
[Source-Business Line 3rd Jan 2008]
Ammannaya's Doctoral Thesis
Doctoral Thesis of Dr.K.K.Ammannaya-
''Performance Budgeting and Employee Participation--
A Participation Model For Indian Banking Industry''
This thesis was submitted to Mangalore University in 1982 and Ph.d degree was awarded by the university in its first convocation .Dr.P.R.Brahmananda,noted economistof India and Prof.Hester anU.S economist examiners had commended and appreciated the thesis for its good quality and depth of analysis and soundness ofconclusions.Dr.Ammannaya was thus the first doctorate in banking from Mangalore University.
''Performance Budgeting and Employee Participation--
A Participation Model For Indian Banking Industry''
This thesis was submitted to Mangalore University in 1982 and Ph.d degree was awarded by the university in its first convocation .Dr.P.R.Brahmananda,noted economistof India and Prof.Hester anU.S economist examiners had commended and appreciated the thesis for its good quality and depth of analysis and soundness ofconclusions.Dr.Ammannaya was thus the first doctorate in banking from Mangalore University.
Saturday, April 5, 2008
Some Books Of Dr.K.K.Ammannaya
Important Books Written By Ammannaya are-
1.Performance Plans and Strategies for Indian Banks.
2Indian Banking Yesterday,Today,and Tomorrow.
3.Nayakatva Nirmana,a Kannada Book on individual development.
4.T.A.Pai-Thoughts and Achievements[Edited]
5.T.A.Pai-Chintane mathu Sadhane,Kannada book[Edited]
6Housing for All.[Edited]
7Indian Banking Issues.
8.Bharathada Bankingu,Ninne,Indu Mathu Nale[A Kannada book On Banking]
1.Performance Plans and Strategies for Indian Banks.
2Indian Banking Yesterday,Today,and Tomorrow.
3.Nayakatva Nirmana,a Kannada Book on individual development.
4.T.A.Pai-Thoughts and Achievements[Edited]
5.T.A.Pai-Chintane mathu Sadhane,Kannada book[Edited]
6Housing for All.[Edited]
7Indian Banking Issues.
8.Bharathada Bankingu,Ninne,Indu Mathu Nale[A Kannada book On Banking]
Financial literacy and Credit Counselling
The Reserve Bank Of India has recently asked banks to establishFinancial Literacy and Credit Counselling Centres either individually or in association with other banks with pooled resources.In a concept paper issued recently RBI has advised that banks can set up Financial Literacy and Credit Counselling Centres[FLCCs]that may be run and managed by trusts or societies.While FLCCs may include respectable local individuals on the boards of such trusts or societies RBI has specifically stated that bankers presently in service must not be included as members on the boards of FLCCs.
The concept paper released by RBI has three parts-Part A,Part-Band Part C.Part A deals with issues and matters relating to financial literacy.Part B pertains to issues relating tocredit counsellingand Part Coutlines the suggested scheme for FLCCs.
Objectives Of FLCCs-
The main objective of FLCCis to provide information about various productsand services,face to face financial counselling,education on responsible borrowingand offering debt counselling to individuals.While big borrowers are able to negotiate and get loans at finer sub-PLRrates of interest small borrowers are required to borrow at rates equivalent to PLR or above PLR..Small borrowers are thus at a disadvantage.As regards one time settlement of overdue loans also big borrowersare able to negotiate and obtain substantial concession whereas small borrowers do not know how to go about and to whom to represent in the matter.The proposed centre may be a boon to such borrowersand they can approch banks through them.
RBI has advised that FLCCs must be distinct and separate entities and they have to operate independently.To start with they can function from the premises of banksto save on cost.They must function in such a way that it must not appear that they are recovery agents or marketing associates of banks.Initially banks have to help fund the FLCCsand once the system stabilisesthe centres can recover part of the costby levying nominal charges on the bankswhose customers start repayment following credit counselling by the centre.
The RBI has also stressed need for trainingfor the counsellors.Proper training and skill upgradation is essential for counsellorsto keepthemselves abreast of latest developmentsin banking industry.In order to ensure regular supply of trained counsellorsspecialised trining programmes may have to be designed by Indian Institute of Banking and Finance.Inputs in training must be credit counsellingand debt management and other related issues.
The above move is a welcome initiative on the part of RBI.Promotion of financial literacy and credit counselling are indispensible bases for meaningful and complete financial inclusion.At present districts where all households have opened bank accounts are treated as districts with full financial inclusion.As a matter of fact opening of a bank account is the starting point in fiancialinclusionand it is not the completion of inclusion.Real financial inclusion is complete once all households and individuals come to the mainstream of financial and economic life.This requires concertedand constant efforts in that direction.Banking system can not bypassthe vast majority of riskier small entrepreneursand small businessmen and agriculturists.While urban employment is incresing thereare no additional job opportunities created in rural sector except throughnational rural employment guaranteeprogramme.The poor and rural people also need economic reforms as much as the urban people and the richer sections of society.The real economic strength of Indian economy lies in rural sector.The vast business potential available in the bottom of the pyramid must be exploted by banks.Banks will find lot of business opportunities in agriculture,small industries,smalland medium enterprises,etc.Complete financial inclusion of all these will bring into banks'fold substantial fresh business opportunities.
There is a pressing need to make the above segments financially literate,and credit literate.It is necessary to diluge these segments with information on how to borrowand make profitable use of credit,how to remain creditworthy,,how to negotiate and get best possible rate and terms of sanction,,how to address and overcome problems as and when they ariseetc.Also newindividual customers who have opened bank accounts including no-frill accounts must also be taught how to make use of banking products and services.Debt management,the manner in which debt which has become irregular can be restructured etc must be taught to them.The FLCCs may serve a useful purpose if they are set up .They can make substantial contribution to real financial inclusion.The RBI must finalise the scheme at the earliest and circulate the same to banks.Banks operating in a particular centre may join together and set up an FLCCfor the benefit of customersand banking public.New trusts or societies maybe formed for this purpose.Trusts that are in existence in the locality may also take up the job of establishing and running an FLCC if the same is permissible as perthe objects clause of the trust.Banks can donate funds to such trusts in order tofacilitate the establishment of FLCC.Banks may also encourage interested local individuals to establish a trust or society for the purpose of setting up and managing an FLCC.[Published in Business Line dated 22nd April 2008]
The concept paper released by RBI has three parts-Part A,Part-Band Part C.Part A deals with issues and matters relating to financial literacy.Part B pertains to issues relating tocredit counsellingand Part Coutlines the suggested scheme for FLCCs.
Objectives Of FLCCs-
The main objective of FLCCis to provide information about various productsand services,face to face financial counselling,education on responsible borrowingand offering debt counselling to individuals.While big borrowers are able to negotiate and get loans at finer sub-PLRrates of interest small borrowers are required to borrow at rates equivalent to PLR or above PLR..Small borrowers are thus at a disadvantage.As regards one time settlement of overdue loans also big borrowersare able to negotiate and obtain substantial concession whereas small borrowers do not know how to go about and to whom to represent in the matter.The proposed centre may be a boon to such borrowersand they can approch banks through them.
RBI has advised that FLCCs must be distinct and separate entities and they have to operate independently.To start with they can function from the premises of banksto save on cost.They must function in such a way that it must not appear that they are recovery agents or marketing associates of banks.Initially banks have to help fund the FLCCsand once the system stabilisesthe centres can recover part of the costby levying nominal charges on the bankswhose customers start repayment following credit counselling by the centre.
The RBI has also stressed need for trainingfor the counsellors.Proper training and skill upgradation is essential for counsellorsto keepthemselves abreast of latest developmentsin banking industry.In order to ensure regular supply of trained counsellorsspecialised trining programmes may have to be designed by Indian Institute of Banking and Finance.Inputs in training must be credit counsellingand debt management and other related issues.
The above move is a welcome initiative on the part of RBI.Promotion of financial literacy and credit counselling are indispensible bases for meaningful and complete financial inclusion.At present districts where all households have opened bank accounts are treated as districts with full financial inclusion.As a matter of fact opening of a bank account is the starting point in fiancialinclusionand it is not the completion of inclusion.Real financial inclusion is complete once all households and individuals come to the mainstream of financial and economic life.This requires concertedand constant efforts in that direction.Banking system can not bypassthe vast majority of riskier small entrepreneursand small businessmen and agriculturists.While urban employment is incresing thereare no additional job opportunities created in rural sector except throughnational rural employment guaranteeprogramme.The poor and rural people also need economic reforms as much as the urban people and the richer sections of society.The real economic strength of Indian economy lies in rural sector.The vast business potential available in the bottom of the pyramid must be exploted by banks.Banks will find lot of business opportunities in agriculture,small industries,smalland medium enterprises,etc.Complete financial inclusion of all these will bring into banks'fold substantial fresh business opportunities.
There is a pressing need to make the above segments financially literate,and credit literate.It is necessary to diluge these segments with information on how to borrowand make profitable use of credit,how to remain creditworthy,,how to negotiate and get best possible rate and terms of sanction,,how to address and overcome problems as and when they ariseetc.Also newindividual customers who have opened bank accounts including no-frill accounts must also be taught how to make use of banking products and services.Debt management,the manner in which debt which has become irregular can be restructured etc must be taught to them.The FLCCs may serve a useful purpose if they are set up .They can make substantial contribution to real financial inclusion.The RBI must finalise the scheme at the earliest and circulate the same to banks.Banks operating in a particular centre may join together and set up an FLCCfor the benefit of customersand banking public.New trusts or societies maybe formed for this purpose.Trusts that are in existence in the locality may also take up the job of establishing and running an FLCC if the same is permissible as perthe objects clause of the trust.Banks can donate funds to such trusts in order tofacilitate the establishment of FLCC.Banks may also encourage interested local individuals to establish a trust or society for the purpose of setting up and managing an FLCC.[Published in Business Line dated 22nd April 2008]
Tuesday, April 1, 2008
New Basel Norms-Banking Opportunities
The Reserve Bank of India has recently asked banks to make their own assessment of their various risk exposures through a welldefined internal processand maintain an adequate capital cushion for such risks.The RBI has issued detailed guidelines in this regard under Pillar II of Basel II framework.Pillar II deals with supervisory review process.{SRP]The objective of SRP is to ensure that banks have adequate capital to support all risks and also to encourage them to develop and use better risk management techniques for monitoring and managing risks.
Banks have to calculate regulatory capital requirement under Pillar I of Basel Framework.These guidelines must be implemented with effect from March 31,2009 by foreign banks nad Indian banks having foreign operations and from March 31,2010 by all commercial banks.
The Bank for International Settlements was for nearly two decades grappling with the issue of how much capital a bank must have in order to ensure its continued stability having regard to the environment in which it operates and on the basis of assessment of risks involved.The Bank for International Settlements[BIS]arrived at the minimum capital requirement at 8 per cent of risk weighted assets.The Basel I recommendations on minimum capital requirement were accepted by most countries for adoption by banks in their respective countries.
Basel I accord being quite simple adopted a straight ''one size fits all''approach which does not distinguish between differing risk profiles and risk management standards across banks.Basel I norms were mainly meant for ensuring adequacy of capital as a definite proportion of risk weighted assets.They consider and take into account risks in totality or in overall terms alone.
Efforts were on for several years to find ways of remedying the deficiencies of Basel I norms and Basel Commitee came out with new approach in June 2004.The final version of the accord titled ''International Convergence of Capital Management and Capital Standards -A Revised Framework'' was released by BIS.This is popularly known as New Basel Accord or simply Basel II.
Basel II seeks to rectify most of the defects of Basel I accord.The objectives of Basel II are the following-
1.To promote adequate capitalisation of banks.
2.To ensure better risk management.
3 To strengthen the stability of banking system.
Three Pillars-
Basel II rests on three mutually reinforcing pillars.The first Pillar is concerned with the closer alignment of bank capital with the range of perceived risks.Basel I categorised risks in respect of credit in broad terms without taking into account individaul creditworthiness or lack of it.In other words it does not consider risks involved in individual assets.Under Basel II the above defect is sought to be rectfied by stipulating higher capital for higher risks and vice versa.This Pillar of the approach seeks to bring about alignment of capital requirement to each bank's actual risk of economic loss.It takes in to account all types of risks including market risk and credit risk.It prescribes minimum capital requirement having due regard to risk profile of each bank.
Pillar II of the new capital framework recognises the necessity of undertaking effective supervisory review of banks'internal internal assessment of their overall risks.This is to ensure that bank managements exercise sound judgement in the matter and set aside sufficient capital for these risks.RBI has now issued detailed guidelines under this pillar.The RBI guidelines have listed some risks that banks are generally exposed to but which are not fully captured in the regulatory capital to risk assets ratio[CRAR]such as interest rate risk,credit concentration risk,liquidity risk,settlement risk,and reputation risk among others.Banks have to provide and set aside adequate capital after evaluating all these types of risks.RBI will undertake supervisory review and assess and see whether capital is adequate and if there is shortfall the RBI may direct a bank to set aside extra capital.
Pillar III is meant for imposing market discipline among banks to ensure prudent management.This is sought to be done by enhancing the degree of transparency and public disclosures in banks' public reporting.Banks may follow the standardised approach wherunder they can make use of external credit ratings to assess and evaluate risks.More sophisticated banks can make use of internal rating basrd approaches.This may however be subject to strict supervision by regulatory authorities.Apart from credit risk and market risk covered by Basel I Basel II also provides for operational risks such as losses caused by failure of systems lapses on the part of staff and also losses arising out of external events such as natural disasters like fllods,earth quakes,etc.
The RBI had earlier indicated that banks must come out with framework for migrating their standards of supervision accountability and best practice guidelines in line with the provisions of Basel II Accord.Moreover the framework adopted by banks must be adaptable to changes in business size market dynamics and introduction of new products in future.In order to ensure this banks must-
1.Make indepth analysis of the options available under Basel II.
2,Adopt standardised approach for credit risk.
3.Adopt basic indicator approach for operational risk
4.review the progress at quarterly intervals.
and
5Instal comprehensive and rigorous system to assess borrower risk.
The RBI may closely monitor the progress to be made by banks .The basel II norms set out details for adopting more risk sensitive minimum capital requirements for banks.The new framework reinforces these risk sensitive requirements by laying down principles for banks to assess the adequacy of their capital and for supervisors to review such assessments to ensure that banks have adequate capital to support their risks.It also seeks to strengthen market discipline by enhancing transparency in banks;financial reporting.In overall terms we can broadly classify the essentials of Basel II as under-
Capital Adequacy.
Basel II intends to replace the existing approach by a system that would use external credit assessments for determining risk weights.It is intended that such an approach will also apply either directly or indirectly and in varying degrees to the risk weighting of exposure of banks to corporates and securities firms.The result will be reduced risk weights for high quality corporate credits and introduction of more than 100 percent risk weight for low quality exposures.
Risk Based Supervision
This ensures that a bank's capital position is consistent with its overall risk profile and strategy thus encouraging early supervisory intervention.The new framework lays accent on bank managements developing internal assessment processes and setting targets for capital that are commensurate with bank's particular risk profile and control environment.This internal assessment then would be subjected to supervisory review and intervention by RBI.
Market Disclosures
The strategy of market disclosure will encourage high diclosure standards and enhance the role of market participants in encouraging banks to hold and maintain adequate capital.
Advantages
The advantages that may accrue by implementing Basel II norms are in the form of opportunities ,namely banking and non-banking opportunities.
Banking Opportunities
India is presently one of the fast growing economies in the world.A sound,vibrant,efficient and evolved banking system will act as a strong spur to the growth efforts of India.Indian banking system is no doubt stronger than its counterparts in Asia in terms of performance indices and range of products and services.When compared to many peer group countries still some better risk practices are required to be adopted by Indian banks.Many of the Indian banks have low levels of competence in risk management system.They are yet to develop expertise in the use of modern technology and tools when compared to thjeir western counterparts.Second stage economic reforms,higher market dynamics and incresed globalisation demand robust risk management system in Indain banks.Failure of some banks like Glogal Trust Bank,United Western bank etc have shown that the existing level of risk based supervision and market disclosures are not adequatein Indain banking system.Basel II will provide a new framework for improvement in this regard.
Banks which are Basel II compliant can project a better image and amass more business from the market.The public can choose banks on the basis of market disclosures for keeping their deposits and for their credit needs.Banks also will have incentive to select assets of better quality.As a result there will be stress on toning up credit appraisal in banks.There will emerge more professionalism in credit decisions and credit management.There will be shift of emphasis from adequacy of capital to capital efficiency.Basel II compliant banking system will further enhance the image of India in the world and India's country rating will go up .This will facilitate larger inflow of FDI and other capital inflows.With improved image Indian banks will be able to raise resources at cheaper rates in foreign countries.With higher networh and improved capital efficiency Indian banks can pursue the task of financial inclusion aggrressively and try to exploit business and intermediation opportunities available at the bottom of the pyramid with greater measure of success.
Non -Banking Opportunities
The major advantage of basel II for Indai is going to be in the area of servicesin general and IT nad manpower in particular.Banks all over the world have to make huge investments inorder to be Basel II compliant.These investments will be mainly in the area of information technology,systems training.etc.These will cover software tools,data base management businessintelligence,hardware etc.These are necessary to create risk infrastructure to address the three pillars of the framework.Lot of opportunities will arise here for for consultancy for IT companiesin India and abroad.Employment opportunities in It companies will increaseand grow.Nedd for experts in the field of risk management will increse.
Constraints and Hurdles
Implementation of Basel II is not easy for banks.The technology infrasrtucture in terms of computerisation is still in nascent stage in several Indian banks.Computerisation of all branches including rural branches will be a challenging task.Owing to late start in computerisation most banks lack robust data capture ,cleansing and mannagement practices.This will be great hurdle in the process of implementation of Basel II.
The implementation of Basel II promises significant gains for the economy.Risk based capital maintenance by banks will enhance financial stability.This will promote risk based pricing which will ultimately contribute to enhancement of shareholder value.Implementation of Basel II may trigger new developments including mergers and acquisitions.In the new scenario there will be increased accent on corporate governance and creation and enhancement of share holder value in banking institutions
Banks have to calculate regulatory capital requirement under Pillar I of Basel Framework.These guidelines must be implemented with effect from March 31,2009 by foreign banks nad Indian banks having foreign operations and from March 31,2010 by all commercial banks.
The Bank for International Settlements was for nearly two decades grappling with the issue of how much capital a bank must have in order to ensure its continued stability having regard to the environment in which it operates and on the basis of assessment of risks involved.The Bank for International Settlements[BIS]arrived at the minimum capital requirement at 8 per cent of risk weighted assets.The Basel I recommendations on minimum capital requirement were accepted by most countries for adoption by banks in their respective countries.
Basel I accord being quite simple adopted a straight ''one size fits all''approach which does not distinguish between differing risk profiles and risk management standards across banks.Basel I norms were mainly meant for ensuring adequacy of capital as a definite proportion of risk weighted assets.They consider and take into account risks in totality or in overall terms alone.
Efforts were on for several years to find ways of remedying the deficiencies of Basel I norms and Basel Commitee came out with new approach in June 2004.The final version of the accord titled ''International Convergence of Capital Management and Capital Standards -A Revised Framework'' was released by BIS.This is popularly known as New Basel Accord or simply Basel II.
Basel II seeks to rectify most of the defects of Basel I accord.The objectives of Basel II are the following-
1.To promote adequate capitalisation of banks.
2.To ensure better risk management.
3 To strengthen the stability of banking system.
Three Pillars-
Basel II rests on three mutually reinforcing pillars.The first Pillar is concerned with the closer alignment of bank capital with the range of perceived risks.Basel I categorised risks in respect of credit in broad terms without taking into account individaul creditworthiness or lack of it.In other words it does not consider risks involved in individual assets.Under Basel II the above defect is sought to be rectfied by stipulating higher capital for higher risks and vice versa.This Pillar of the approach seeks to bring about alignment of capital requirement to each bank's actual risk of economic loss.It takes in to account all types of risks including market risk and credit risk.It prescribes minimum capital requirement having due regard to risk profile of each bank.
Pillar II of the new capital framework recognises the necessity of undertaking effective supervisory review of banks'internal internal assessment of their overall risks.This is to ensure that bank managements exercise sound judgement in the matter and set aside sufficient capital for these risks.RBI has now issued detailed guidelines under this pillar.The RBI guidelines have listed some risks that banks are generally exposed to but which are not fully captured in the regulatory capital to risk assets ratio[CRAR]such as interest rate risk,credit concentration risk,liquidity risk,settlement risk,and reputation risk among others.Banks have to provide and set aside adequate capital after evaluating all these types of risks.RBI will undertake supervisory review and assess and see whether capital is adequate and if there is shortfall the RBI may direct a bank to set aside extra capital.
Pillar III is meant for imposing market discipline among banks to ensure prudent management.This is sought to be done by enhancing the degree of transparency and public disclosures in banks' public reporting.Banks may follow the standardised approach wherunder they can make use of external credit ratings to assess and evaluate risks.More sophisticated banks can make use of internal rating basrd approaches.This may however be subject to strict supervision by regulatory authorities.Apart from credit risk and market risk covered by Basel I Basel II also provides for operational risks such as losses caused by failure of systems lapses on the part of staff and also losses arising out of external events such as natural disasters like fllods,earth quakes,etc.
The RBI had earlier indicated that banks must come out with framework for migrating their standards of supervision accountability and best practice guidelines in line with the provisions of Basel II Accord.Moreover the framework adopted by banks must be adaptable to changes in business size market dynamics and introduction of new products in future.In order to ensure this banks must-
1.Make indepth analysis of the options available under Basel II.
2,Adopt standardised approach for credit risk.
3.Adopt basic indicator approach for operational risk
4.review the progress at quarterly intervals.
and
5Instal comprehensive and rigorous system to assess borrower risk.
The RBI may closely monitor the progress to be made by banks .The basel II norms set out details for adopting more risk sensitive minimum capital requirements for banks.The new framework reinforces these risk sensitive requirements by laying down principles for banks to assess the adequacy of their capital and for supervisors to review such assessments to ensure that banks have adequate capital to support their risks.It also seeks to strengthen market discipline by enhancing transparency in banks;financial reporting.In overall terms we can broadly classify the essentials of Basel II as under-
Capital Adequacy.
Basel II intends to replace the existing approach by a system that would use external credit assessments for determining risk weights.It is intended that such an approach will also apply either directly or indirectly and in varying degrees to the risk weighting of exposure of banks to corporates and securities firms.The result will be reduced risk weights for high quality corporate credits and introduction of more than 100 percent risk weight for low quality exposures.
Risk Based Supervision
This ensures that a bank's capital position is consistent with its overall risk profile and strategy thus encouraging early supervisory intervention.The new framework lays accent on bank managements developing internal assessment processes and setting targets for capital that are commensurate with bank's particular risk profile and control environment.This internal assessment then would be subjected to supervisory review and intervention by RBI.
Market Disclosures
The strategy of market disclosure will encourage high diclosure standards and enhance the role of market participants in encouraging banks to hold and maintain adequate capital.
Advantages
The advantages that may accrue by implementing Basel II norms are in the form of opportunities ,namely banking and non-banking opportunities.
Banking Opportunities
India is presently one of the fast growing economies in the world.A sound,vibrant,efficient and evolved banking system will act as a strong spur to the growth efforts of India.Indian banking system is no doubt stronger than its counterparts in Asia in terms of performance indices and range of products and services.When compared to many peer group countries still some better risk practices are required to be adopted by Indian banks.Many of the Indian banks have low levels of competence in risk management system.They are yet to develop expertise in the use of modern technology and tools when compared to thjeir western counterparts.Second stage economic reforms,higher market dynamics and incresed globalisation demand robust risk management system in Indain banks.Failure of some banks like Glogal Trust Bank,United Western bank etc have shown that the existing level of risk based supervision and market disclosures are not adequatein Indain banking system.Basel II will provide a new framework for improvement in this regard.
Banks which are Basel II compliant can project a better image and amass more business from the market.The public can choose banks on the basis of market disclosures for keeping their deposits and for their credit needs.Banks also will have incentive to select assets of better quality.As a result there will be stress on toning up credit appraisal in banks.There will emerge more professionalism in credit decisions and credit management.There will be shift of emphasis from adequacy of capital to capital efficiency.Basel II compliant banking system will further enhance the image of India in the world and India's country rating will go up .This will facilitate larger inflow of FDI and other capital inflows.With improved image Indian banks will be able to raise resources at cheaper rates in foreign countries.With higher networh and improved capital efficiency Indian banks can pursue the task of financial inclusion aggrressively and try to exploit business and intermediation opportunities available at the bottom of the pyramid with greater measure of success.
Non -Banking Opportunities
The major advantage of basel II for Indai is going to be in the area of servicesin general and IT nad manpower in particular.Banks all over the world have to make huge investments inorder to be Basel II compliant.These investments will be mainly in the area of information technology,systems training.etc.These will cover software tools,data base management businessintelligence,hardware etc.These are necessary to create risk infrastructure to address the three pillars of the framework.Lot of opportunities will arise here for for consultancy for IT companiesin India and abroad.Employment opportunities in It companies will increaseand grow.Nedd for experts in the field of risk management will increse.
Constraints and Hurdles
Implementation of Basel II is not easy for banks.The technology infrasrtucture in terms of computerisation is still in nascent stage in several Indian banks.Computerisation of all branches including rural branches will be a challenging task.Owing to late start in computerisation most banks lack robust data capture ,cleansing and mannagement practices.This will be great hurdle in the process of implementation of Basel II.
The implementation of Basel II promises significant gains for the economy.Risk based capital maintenance by banks will enhance financial stability.This will promote risk based pricing which will ultimately contribute to enhancement of shareholder value.Implementation of Basel II may trigger new developments including mergers and acquisitions.In the new scenario there will be increased accent on corporate governance and creation and enhancement of share holder value in banking institutions
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