Banking Issues

Training the new recruits

The initiative taken by Sri.Lakshmivenkatesh Rao to conduct a short training in decision making for first line managers (Facebook post 29/11/15), is quite laudable.

Regular training at organizational (apex) level takes time.   For that, first line managers who are not much experienced and have been thrust in to the position either due to circumstances or organizational requirements, can’t wait for long.   It is better to have a local center level or region level trainings / workshops to take care of the interim period until formal training is arranged.

The new generation bankers are well educated (rather over-qualified for the position), more tech savvy and with high expectation.   But they get easily frustrated when they encounter delays, indecisions and rejections (of their suggestions).   They are yet to attune to the organization structure and its decision making process.  They should understand that there is no quick fix solution to many of the issues in banking.  It has to be process oriented.   But this may not come in the way of their customer service, barring a few specific customer requests.

The seniors have to handhold new recruits by adopting a few branches / certain number of staff in their vicinity.   This will go a long way than classroom lectures.    But this also has its own limitation, as the person who guides may not know everything in banking.   So it is always better a pool of talents in a center / region can guide the bankers at that center / region, of course, other than issues affecting policy decisions.

Most of the banks are not in good shape due to their quality of assets.  This is the time staff members should have confidence.   It will send a wrong signal If they lose hope and express it in words / deeds when the customers are around.    Each and every staff should be brand ambassador of their bank.   They should exhibit confidence and hope in their conduct.   “Yad bhavam tad bhavati,”

It is also observed that frequent visits of branches / offices by executives are seen as support and encouragement to the employees. 

The ultimate aim of trainings, meetings, discussions, etc. should be to prepare the staff to serve clients confidently.   Their effectiveness can be gauged by the business figures and increase in income of the branch.  That only can motivate the new comers, who have immense potential.     

Banking Issues

Branch profitability

Normally First line managers will be worried about their bottom line figures.   They have to deliver, fulfill the management expectations and show results month after month.

Yes; even a ‘panwala’ will not continue his business if it incurs losses continuously for six months.  So it is all the more important that a financial institution should be run profitably.    Nobody will enter in to sinking ship. 

Customers are not interested in individual branch performance and they look at macro level – bank as a whole.   If clients start analyzing individual branch performance, it is doubtful whether business will be as usual.   This is applicable to all banks.

Nowadays younger generation people (Gen Y) head many of the branches who are not much experienced as well as do not have much exposure, due to various reasons.   But they have a lot of potential, innovative ideas and experimenting attitude, which can be used in the business to achieve the required goal.

Banks have different products for different customers, all contributing to profit.   It is normal to say that curtailing expenses will increase the profit.   True; but fixed expenses and inelastic items like Rent, Staff cost, etc. cannot be tinkered with.   Reduction of staff can be done; but at what cost?   They should be considered as human capital and can be used for marketing, customer service, recovery, etc.

Hence increasing the income portfolio is the only solution to stay in the business.   Let us see some of the ways:

1. For banks, interest income is the main source, which will also deploy the funds mobilized at the branch level earning higher interest.   A good mix of Retails loans, Term loans, Working capital loans, etc. will give continuous income.    Self liquidating ones like Bill finance, assured return giving Liquirent, highly secured ones like Jewel loan, employer-tied up personal loans, etc. will improve the bottom line.

2. The above should be supplemented by fee based / non interest income like issuing LG; LC, issuing DD; NEFT; RTGS, collecting Locker rent, sale of third party products like insurance, mutual fund, etc.     But it should be ensured that branch earns majority of its income only through core banking business and not from third party products.     This product should be used to attract new clients and making them as our customers.  (In reality many branches sell such products only to the existing clients).

3. There are other areas like keeping minimum balance in ‘account with other banks’, optimum cash retention, reduction in advertisement cost by ‘being in the news’, etc.

4. Recovery of NPA, overdue, etc. will also result in increased income.

5. Another important source is reduction in Term Deposits.   These deposits may improve the top line but will be costly for the branch, even though they stay for a fixed term.  Instead, CASA will be better, even if it is withdrawn at the ‘right’ time.   In CASA, end figures are not important; average CASA balance each day is important.

It will be helpful to prepare branch-wise balance sheet to see where each branch stands.  It will also help the branch staff to improve customer happiness, indulge in cross selling and to involve them in bank development.

Ultimately, any commercial establishment has to earn profit and branches are not exempted.

Banking Issues

Frequent transfer of funds devoid of genuine trade

Senior bankers know the issue of ‘kite flying’, a loose term referring to issue of cheques on sister concerns without any underlying trade transactions (similar to accommodation bills) and meeting the payment obligations by issuing another cheque on the same entity or using bills / LC limits without genuine movement of goods.

There were days when clearing of cheques took a few days to clear and the fraudsters used to enjoy this gap to their advantage.

Nowadays, with the introduction of High Value Clearing, RTGS, etc., it has been brought under control.   However, still some clients find loopholes in the system.  Pending RTGS credit in the evening, they send out money by RTGS to other accounts to make ‘rotation’.   Some make payment of bills to use the available LC limits again.

They create money out of thin air to:

-       Inflate turnover in their account, so that they can further increase the limits of working capital facilities.   One may observe such clients avail adhoc limits, excesses, and enhancements in limits very often without waiting for normal review period of their facilities.

-    Avoid account becoming NPA due to overdue bills, unadjusted excess drawings, devolvement of LC / LG, etc.

-       Avail the usance bills facility which is otherwise lying idle

-       Create a record that they are prompt in honoring their commitment on due dates

Care:

This bubble has to be busted by bankers by taking some precautions while handling the accounts of such unethical customers.

-       Periodic stock verification for outstanding in all facilities (secured by stocks) in ALL BANKS

-    Cross checking the account turnover in ALL BANKS with sales volume, sales tax paid, customs duty paid (wherever applicable), etc.

-       Correlation between income earned and the sales turnover

-       Curtailing deals with sister concerns

-       Discreetly enquiring with company employees about the activities of the company

-       Verifying the company’s balance sheet, P&L account, etc. with the one filed with Registrar of companies

Banking Issues – Accommodation bills

Generally banks discount bills raised by companies on their clients to provide much needed working capital finance to continue their operations.   In doing so, banks consider that they facilitate their corporate customers’ trade cycle, without suspecting much on the underlying transaction.

But some fraudulent companies are misusing ‘bill finance’, by drawing accommodation bills and thereby defrauding banks.    The company connives with the drawees to raise finance, which otherwise they will not be eligible for.

Such accommodation bills do not contain ‘document of title to goods’; even if it is available, it will be a fake one.   Many companies indulge in submitting ‘accepted delivery challans’ with the documents.   Normally, when a bank discounts bills and parts with funds, it is obvious that the stocks procured with the finance secure the finance.    However in such accommodation bills the finance becomes naked, as there is no movement of goods taking place.   This is the first sign of the account becoming NPA later.

Such practices by some unscrupulous clients even cross the border and reflect in export import trade.

Though bank staff is not trained to suspect everybody, they have to exercise some due diligence while extending bill finance.

-       Customer due diligence should be reviewed every year / two years

-       Credit opinion / due diligence report on the drawees by reputed agencies should be obtained periodically

-       LR / BL should be verified with the issuers at random intervals for its genuineness

-       In the case of bill finance against ‘accepted delivery challans’ surprise inspection of materials received is a must

-       It is also advisable to visit the other bank involved to discuss transactions to ensure genuineness

If the bankers tighten their vigilance, proactively, frauds and NPA can be reduced.