Major challenges before Public
Sector Banks
Indian banks are facing innumerable
challenges such as worrying level of NPAs, deteriorating asset quality,
increasing pressures on profitability, asset-liability management, liquidity
risk management, market risk management and ever tightening prudential
norms. Besides this, the disclosure requirements are also increasing.
It must be said to the credit of
Public Sector Banks (PSB) that they have shown considerable resilience
in meeting the challenges of change. They have also withstood testing times
in the context of Southeast Asian financial crisis. Although Indian banks
have consistently rated by the international agencies as the most fragile
in Asia, the annual BT-KPMG rankings of the best banks in 1997-98 revealed
that the fragile system has demonstrated a surprising resilience to turmoil.
However, it must be recognised that
there is little to celebrate, as the banking system in India has to remain
on toes to face myriad changes and to deliver banking of international
standards and quality. Narsimham Committee I and II have made number of
path breaking recommendations to strengthen the banking system and many
of the key recommendations of NCR-I also stand implemented. This is however
not enough. The greatest challenge that the PSBs are today facing is the
Asset Management, both financial and human. The present article attempts
to discuss this.
Financial Assets
Asset quality is the key challenge
before the banks. An improvement in asset quality is fundamental to strengthening
the working of banks and improving their financial viability. The single
most important indicator reflecting the status of quality of assets and
its impact on bank's viability is the figure of net non-performing assets
in relation to advances (NPAs). In fact a number of banks have remained
weak despite their satisfying capital-adequacy norms because of high NPA
proportion in their assets portfolio. An important aspect of the continuing
reform process is to reduce further the level of NPAs as a means of strengthening
the banks. Thus the ever-burgeoning level of NPAs is the most serious challenge
before the bankers. Of the Rs. 45,000 crores of gross NPAs, over Rs. 12,000
crores is locked up in the courts. Although till date the banking system
has provided for Rs. 20,000 crores, it is still stuck with net NPAs worth
Rs. 25,000 crores.
This would require managerial efficiency
on the part of PSBs to not only reduce the average level of net NPA but
also to prevent the recurrence of this problem by ensuring addition of
fresh NPA to bare minimum. Experiencing the inadequacy of legal systems,
recoveries of NPA are not likely to be quick through legal recourse. When
banks are ought to bring down net NPA figures to BSR's stipulated level,
the given legal system's delays would hardly be helpful to comply with
the prescribed time frame. In view of the inadequacy of legal infrastructure
in prompt reduction of NPA, the only feasible alternative is to encourage
non-legal recourse. This would need each bank to have framework for early
detection of acceptable compromise proposals and supportive recovery policy
directed towards out-of-court settlements. Appointment of recovery agents,
utilising services of private security agencies of ascertaining means of
NPA borrowers etc. are the other areas, which require fresh review.
While banks require non-legal time
bound surgical solutions to meet the statutory requirements in reducing
the level of net NPA, the internal legal machinery in banks should obviously
be so strengthened as to ensure speedy disposal of suit-filed cases and
execution of decreed cases. For strengthening the legal system, the banks
may have to consider providing services of trained legal officers at controlling/branch
levels, depending upon the quantum of NPA. Banks are to engage services
of dynamic young lawyers to have desired momentum in follow-up of suit-filed
cases for timely disposal and subsequent execution of decrees.
Since commercial banks are undergoing
a metamorphosis of de-regulations and liberalisations, it is imperative
that micro-level credit administrations should be handled by each PSB individually
with their own risk-perceptions, risk-analysis and risk forecasting. Also,
there has to be tightening of loan review mechanism to ensure end-use of
funds so that scarce credit resources are prevented from pre-emption and
diversion, particularly by large borrowers. There is need for continuous
improvement in asset quality by strengthening skill at the grass root level,
adopting regular inter-face with borrowers, ascertaining periodical operating
performance of the firm etc. Periodical exchange of information among financing
banks is the need of the day to understand the warning symptoms to prevent
deterioration of asset quality. To minimise erosion of asset quality in
future banking, there is immediate need for implementation of rigorous
systems to eliminate diversion of funds by the borrowers towards less viable
activities such as investments, loans to subsidiaries facing financial
woes etc.
Quality asset building will also
require up-to-date market information on various industries, a deeper and
penetrating insight about the financial transactions of large borrowal
groups, economic trends in a globalised environment and industry knowledge
about new areas for financing like software, infrastructure, service sector
and other IT based industries etc. The bankers who have so far focused
on marketing of deposits have to adopt a new mindset for credit marketing,
which require a high degree of analytical, financial and negotiating skills.
Human Assets
Although NCR-I and II have shown
their concern about the quality of human asset and the prevailing problems
in HR areas, very little initiative has been taken in the last few years
in this crucial but significant area. As the demands on the banking system
are increasing and its priorities are re-focused to create sustainability
and profitability, it is time to restructure HR policies, which have generally
remained static and ad-hoc so far. In a highly competitive environment,
banks have to address to the following changes in this critical area :
Man-power Planning
The banks have to suitably realign
their existing human resources from surplus to deficit pockets and readjust
staffing pattern in a computerised environment. Surplus staff from very
large branches which are now computerised, need to be relocated or assigned
newer jobs such as marketing etc. Mobility of staff has to be negotiated
with employees' organisations as a measure to improve organisational efficiency
and improve productivity. About 70% staff in each bank constitutes clerical
and subordinate staff. In spite of many changes that the industry has faced
over the years, essentially the role of this category of staff has remained
unchanged. There is the need to re-define the clerical roles in the bank
and there is also a need to enrich clerical roles by introducing discretionary
elements in front-line clerical roles and giving them responsibility of
higher nature such as initiating correspondence, working in marketing teams,
operational roles, public relation roles etc.
The banks also need to develop existing
staff in newer competencies through a systematic and rigorous training
and also recruit, if necessary super specialist and specialist in areas
like technology, treasury management, marketing, FOREX operations and project
management.
The existing managers need to be
developed as turn-around managers through training in self-management and
inculcation of skills in problem solving, conflict management and change
management. Needless to say that succession planning in managerial cadre
must occupy central concern for bank management.
Talent Management
Banks have an excellent pool of
competent personnel in all the cadres. Such personnel need to be identified,
nurtured and motivated through a systematic organisational plan to enable
them to accept challenging roles early in the career. Suitable changes
in the promotion policies should take care of aspirations of such extra
ordinary and talented manpower. Banks will also have to pay increasing
attention to education and training including sponsorship of identified
persons to MBA programmes, PhD programmes and other long duration programmes
in technology and financial management to develop a wider managerial poor
of competent people who can be developed fast to play the role of modern
banker in ever difficult and turbulent times. Banks will have to introduce
innovative mechanism and process to respond to the aspirations of such
talented people by providing them sabbatical leave for professional growth
by sponsorship in seminars and conferences, both nationally and internationally,
to present papers and encouraging them to join professional organisations
to develop appropriate competencies and network with fellow professionals.
In other words, within the work organisation, banks will have to provide
professionally satisfying quasi-academic environment for growth and development.
Pro-active, progressive and positive approach in talent management should
be important feature of HR policies.
Awareness Development
There is also need to develop organisation-wide
awareness about banks key-business problems including stagnant business
units, strain on profitability, cost of operations, unexplored business
opportunities, manpower costs, NPAS etc. This could be done by senior and
top
management at various key centres for all the staff to make them aware
about the areas of concern for the bank with a view to seek their involvement
in improving business growth and profitability. It can be said from the
personal experience of the author that such sharing is always useful and
trade unions' as well as employees' response to organisational improvement
process is generally encouraging.
Industrial Relations Climate
Trade unions and bank management
have to identify key issues for reform in HR areas that could be crucial
to meet competition. By and large, bi-partitism is well established in
each bank and many contentious issues can be resolved by discussions. Tender
mindedness, compromises on principles and appeasement must give way to
more serious dialogue on important issues. Issues such as review of existing
settlements, re-deployment of surplus staff, removal of restrictive practices,
re-defining clerical and subordinate staff roles, performance appraisal
of clerical staff are some of the issues that require negotiations with
unions to improve productivity, work-culture and finally a smooth transition
to competitive environment.
Finally, there is a need to re-define
the HR roles in the bank by forging HR-business partnership. This will
require very matured handling and monitoring of this critical function.
In the ultimate analysis, one of the key agenda before PSBs should be to
improve quality of their assets-both financial as well as human.
(The views expressed are his personal
views.) |