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.