Roots to Fruits - The Journey of Development Banker

 

ROOTS TO FRUITS

This Book is all about Yerram Raju? Not just that. Apart from his life story, this book is the quint essence of development banking and financial inclusion that the country has been pursuing as its unfinished economic agenda.

 

He is perhaps one of the few to start his writing spree at the age of 20 and continuing for 60 years in a row. Not a single year was without a few articles from him, that too in reputed financial dailies and journals. This is perhaps his last book in life, that will end up with the publication of Part 2 by December 5, 2020.

 

Large families of the ilk to which the author belonged are consigned to history, following the family planning since the 1950s. Eldest of the twelve children, the author describes vividly how his parents have instilled great values, ethics and austerity. This formed the roots of his career path to pluck of the fruits in his later part of life.

 

Author’s mother proudly said that her contribution to GDP of India was significant with two of her children – one a reputed gastroenterologist in Texas and the other a reputed Certified Professional Accountant in the US. The second son is a Professor in Yoga at Chennai. With all the sisters married to their choicest spouses, they had a fulfilled life. The parents of the Author Dr. Raju who lived beyond 94yrs and 81yrs respectively had an enriching life nurturing great ambitions in their children.

 

The Book depicts his intense affection towards parents, his own family, and great reverence to his teachers. His verse on Mother and his prose on Father are moving stories. It is a tell-tale story of the growth of a large family and its contribution to the growth of the economy.  All the children of this large family, however, preferred nuclear families.

          

Since Yerram Raju, the author, grew up in austerity and simplicity, he saw his three daughters grew up in the same environment. Though they all wanted to stay in India when married, all of them moved to different countries.

 

The Book offers lessons to several upcoming youth on the choices one can make when confronted with multiple options having equal opportunities for career growth. The interviews faced by him can guide the youth. His career in Textile Mills threw up lots of challenges that he ably faced. His parental dependence made him leave the opportunity to take up one of the more challenging competitive careers – civil services and financial services.

 

His choice of banking backed by emotion had its fruits. He could see the rarest of rare things to happen – retirement of his father serving the same branch where he was posted as Agent, at his hands. Doing PhD instead of pursuing professional course that would have seen a rise in the banking career faster than he had, speaks of his continued choice of academics. This enabled him later to teach the civil servants at Lal Bahadur Shastri Academy of Administration, Mussoorie and Administrative Staff College of India. He was also an external examiner for doctoral degree of three universities. It is difficult to find a banker adorning     s u c h     position.

 

Lending to agriculture and allied activities, particularly to the financially excluded like the marginal small farmers, potters, small enterprises was an obsession with him. Simplification of systems and procedures always attracted his attention.

 

The author in this brief of 130-odd pages, describes the journey of development banking as it took place post nationalization of Banks in India. For those looking for solutions to the problems of credit to the poor and needy, this book offers ready-made solutions. The presentation is simple and lucid.

 

          According to him, “Development Banking involves deposit mobilization through innovative schemes considering the needs of a variety of customers and servicing them, both online and offline, and financing development projects that add scheme specific infrastructure for lending and financial inclusion. Social banking is part of development banking. Both require efficient credit risk management. Extension services is part of social banking. Handholding, mentoring, counselling are essential requirements for social banking. It is treated as part of narrow banking, these days.”

         

          He won many an accolade both in the Bank and outside. One such is the recognition as International Man of the Year 1991 by the International Biographical Society, Cambridge for his contribution to rural development.

 

This book offers lessons on recovery of agricultural loans. According to the author, recovery is both an art and science. His success as banker, offers many a lesson for the current day bankers deeply mired in NPAs.

 

The Book is laced with quite a few case studies and provides lots of lessons on development banking. Part 1 of the Autobiography of the author up to the age of sixty years, ends with his transition to academics and consultancy. His relocation prompted by his stint with LBS National Academy proved a good decision at the right time of his career.

 

Readers can look to Part 2 for a greater excitement as it covers policy analysis of the country’s transition to liberalization, privatization, and globalization. The key milestones in this part 1 indicate that the areas would cover financial risk management and institutional innovation.

Available at Amazon store: www.amazon.in/amazon.com

 

Human Resources Critical in Banks

 

HR in Banks Remain Critical

Banks are the talking point in any forum today, not because of deposits or credit held by them, but of the attitude of bankers to their customers. For every need, they look to the machine. One of my retired bosses prefers to attribute it to the HR practices in Banks. He preferred to call HR: “highly ridiculous”. Another retired top executive said: when was it good? The issues are worth pondering in the context of banks failing on several fronts and becoming inevitable cog in the wheel in the economy.

More acceptably, another senior banker said that the recipient system should be as responsible as delivery system. Citing his experience, he gave training to the staff at the Airhostess Training Institution. Customers complain of poor service, but when it comes to rectifying it through appropriate action, those same customers do not stand evidence, making a fool of management. This is not to say that all is hunky-dory with banks. Banks these days have no time to investigate. Firstly, they do not accept that something was going wrong and needed correction.

People over Machines

The most important resource for the banks is certainly not the machines – computers and mobiles – but the persons. They deal with customers – again not machines but persons, of all ages from school-going children to the senior citizens. But what is the attention banks pay in harnessing such resource?

At one time, people accused the PSBs as overstaffed and overpaid. Not anymore. The compliance burden on the manager is less known, a regional manager tells. Average The average business per employee – just deposits and credit - has no comparison with what it was during the 1990s.

Regional Manager would invariably say that he is either in a virtual meeting or busy in correcting a system or reviewing the targets for third party products like insurance, mutual funds.  He at best reviews that banking business his boss would like him to review – Mudra Loans or PMEGY or other government schemes. He would hardly claim full knowledge of all the managers and staff working under his control.

The remuneration and the comforts of the employees, thanks to the IBA’s periodical revisions because of negotiations with the bank unions, are market competitive. Social security including medical and health benefits, leave fare concessions allowing even overseas travel leave no grouse for any of them. Yet, none seem to be happy. Most customers in any case are certainly not happy. Frauds are on the increase.  

Higher the cadre in the Bank, more the necessity to toe the line of the boss than the market share in business he should seek to achieve or the business risks he should address. There is disillusionment in most cadres. It is important to go to the root cause of such situation.

High Aspirations

All those recruited into a bank are equally endowed on the day of recruitment, with an aspiration to move up the ladder. Why then, within a few years, either they become indolent or irresponsible? Why would an employee not so much care if his neighbour does not deal with an issue or customer as he should?

More than in any other institution, in Banks, ethics matter most as the employee deals with other’s money and money that is fungible. The entire surveillance system of the bank – monitoring and supervision should devote enough attention to this aspect. Culturing a person into continuity of ethical practices is the prime responsibility of HR management. Therefore, such responsibility rests with every supervisor – whether at the branch or regional/zonal/Head Office/Corporate Office.

If the employee perceives that at the highest level, persons are measured not for what they do but what they appear to do, like the drop of ink on a blotting paper, it spreads. It must be appreciated that persons are always unequal. Getting these unequal persons on board along with equals is the art and science of HR.

When employees see non-performers rise to the top because their slate is clean, for, nothing was written on it, the morale of the organization declines precipitously. Once such persons occupy the leadership positions at the performing levels, hiatus in attitudes develops. This needs to be arrested and this can be done through a process.

HR Balance Sheet

Banks should draw their HR balance sheet annually right from the branch to the Corporate Office with all intermediaries included. Such balance sheet, unlike the financial balance sheet should have more on assets side than on liabilities side for a globally competitive bank.

The balance sheet I am talking of, is that a person recruited has ‘x’ knowledge, endowed with ‘y’ skills and ‘z’ attitude and all persons recruited have x+y+z=1. They should periodically get enhanced with a score given to each of these x, y, Z. This score should increase with training, experience, and interactive processes on the scanner.

Each Manager should take pride in every person working with him. Annual assessment should be not on a tick in the box on self-assessment sheet but with a discussion between the assessor and assessed. A clear record of the assessment made transparently should detail what improvements are required and what supports he would get from the Manager. This exercise should be done at all levels.  

By the time a clerk reaches a supervisory level and a supervisor reaches a top management level, x^2, x^3, x⁴ levels with aggregates of ‘y’ also getting into similar or varying multiples but ‘z’ the attitude remains at the recruited ethical and understanding level. While dealing with customers of various hues, it is but natural that the response would correspond to the customer’s own approach to the issues. Second, it is human to err. Every supervisor should lend broad shoulder to the employee in all genuine mistakes and where required introduce corrections with sensitivity to the situation.

Transparent and timely redress of grievance and timely punishment to the errand should not be allowed to cloud the views of good performers. This is organisational ethics requiring scrupulous attention. If HR is taken care of, all the ills we now see in Banks will become history, worthy to forget.

*The views are personal. Author is an economist and a retired senior banker. My thanks are due to Santanu Mukherjee, former MD, SBH for his valuable suggestions on the draft.

https://telanganatoday.com/hr-in-banks-remains-critical published on 19.08.2020

 

 

Monetary Policy Statement 6 August 2020

 

Some Healthy Deviation and Unfulfilled Expectations

The twin objectives of Monetary Policy – Containing Inflation and Promoting Growth – have largely been addressed in the latest Monetary Policy Statement of the Governor released on the 6^th August, 2020. Economy continues to face unprecedented stress in the backdrop of unabated pandemic. Inflation of 6.1% is +2% over the inflation target of RBI.

RBI says that inflation objective is further obscured by (a) the spike in food prices because of flood ravage in the north and north-east and ongoing lock down related disruptions; and (b) cost-push pressures in the form of high taxes on petroleum products, hikes in telecom charges, rising raw material costs. These factors led the Monetary Policy Committee to hold to the existing policy rates undisturbed.

Fitch and other rating institutions say that global growth tumbles in the face of pandemic growing uncertainty. ‘All manufacturing sectors remained in the negative territory excepting pharmaceutical sector. Manufacturing PMI remained in contraction at 34.2. Rural demand increase is the only silver line in the economy. Services sector indices show modest resumption of the economy. Yet tourism and aviation, passenger traffic in trains and buses do not show any signs of recovery. There is broad realization that monetary policy should drive credit in sectors that need most and the Banking sector requires more attention.

Liquidity pumped into the banking sector is of the order of Rs.9.57trillion or 4.7% of GDP with no show of risk appetite among banks. This has only assured the Depositors that the money is safe with banks and there is no need for hurried withdrawals for consumption needs.

CREDIT POLICY

The main driver of the consumption, credit activity of banks is mooted. Lot has been expected from the RBI on the credit policy front. Let me first deal with the best things first: Priority sector lending guidelines have been revised reducing regional disparities in the flow of credit and broadening the scope of priority sector to include credit to the Start-ups in the areas of renewable energy, including solar power and biogas compression plants; and, increasing the targets for lending to ‘small and marginal farmers and weaker sections.’ Incentives for lending to these sectors is related to credit flow to the lagging districts and assigning lower weight to incremental credit to priority sectors in districts where comparatively higher flow of credit had already taken place.

MSME Sector:

RBI Bulletin July 2020 indicates that during the current financial year so far, year-on-year growth is -7.6% for manufacturing MSEs and -5.4% for medium enterprises.

MSME Pulse Report indicates covid vulnerability high among 63 percent of the MSMs. Only 31 percent are strongly positioned to come back. It is these that will be pepped up by Banks and not the vulnerable even if they are standard assets. The outbreak of the Covid-19 pandemic will impact the profitability of MSMEs due to the declining market demand and rising operating costs in the new way of working.

Number of Studies, notably, ITC, Skoch Foundation, RGICS, CII, FICCI etc reveal that 59-74 percent of the MSMEs are highly risky and would be on the brink of closure if cash inflows do not support them upfront. GoI took the stand that they will be supported by Credit while those that are weak will be supported by sub-ordinated debt or Equity. This Equity product is yet to roll out from the government although Rs,20000cr guarantee backed fund is allocated in the package.

The Policy nowhere referred to the credit-driven Covid-19 Atma Nirbhar Abhiyan packages. Package one related to the standard assets at 20% additional working capital under Automatic Emergency Credit Relief Guarantee from National Credit Guarantee Trust. Against the Rs.3trn target under this window for standard asset ( Units that are performing or continuing their manufacturing activity) to be achieved by the end of September 2020, Banks have so far sanctioned around Rs.1.6trn of which 60% is disbursed. There are field reports that Banks are seeking to extend the existing collateral and/or guarantee to the additional working capital. The disadvantage for the borrowers is on two counts: one fresh documentation involving stamp duty of Rs.1000 and 2) their existing collateral will get extended for the additional working capital and this is quite contrary to the intentions of the scheme.

The second scheme, involving stressed assets under the category of Special Mention Accounts-2. The broad guidelines released are:

¡  Account shall be -

Ø  Standard as on 31.03.2018

Ø  In regular operations during 2018-19/2019-20

Ø  SMA2 later or NPA as on 30.04.2020 , and;

¡  Commercially viable enterprises post revival

¡  7-yr moratorium for principal amount of subordinated debt/equity

¡  Interest payable every month

¡  Subordinated Debt amount up to 15% of Debt O/s or Rs.75 lakh, whichever is lower will be given as personal loan to the promoter for a 10-year tenure. This amount should not be used for recovery of NPA. Entrepreneur can use this to meet his cash deficit, for meeting the payments to labour and making the unit covid-19 compliant.

¡  Unit should revive in 5 years –RBI Guidelines of March 17, 2016.

¡  Unit should be on growth path for 10 years

¡  Scheme Valid till 30^th September 2020.

Banks have not rolled out this package so far. RBI Master Circular of 2016 on Revival and Restructuring (RBI/16-17/338 dated March 17, 2016) stipulates: 1. Corrective Action Plan; 2. Revival and Restructuring of all viable manufacturing enterprises and 3. Recovery of the unviable through legal means. Banks have not implemented most of these instructions, save rare exceptions. Under the Subordinate Debt scheme, the enterprise should be first viable; it should be currently running whatever be the capacity utilization, and then, it should be restructured to see it as a standard asset in a year’s time and additional revival package and sovereign obligations if any to be recovered fully before the five year period concludes. Initial moratorium for the revival package would depend upon the viability arrived at. District Committees had to be formed and they should decide on the viability.

For all such units with outstanding liability of Rs.10lakhs and below, the Branch Manager is the deciding authority for reviving the unit while for the units over and above this limit, appropriate authority as decided by the Bank will take the call and place it before the District Committee. Though several Banks committed to the RBI that all such District Committees were set up even by December 2017, most of them are dysfunctional.

Under these circumstances, RBI announcing MSME revival and restructuring of enterprises falling under the category of GST-registered Standard Assets as on 1.3.2020 before 31^st March 2021 looks ambivalent.

The virtuous thing about the current instruction is that the asset classification as standard may be retained as such, whereas the accounts that may have slipped into NPA category between March2, 2020 and date of implementation may be upgraded as ‘Standard asset’ from such date of implementation. Banks are expected to maintain additional provisioning of 5% over and above the provision already held by them for such assets.

RBI should have allowed such forbearance for all the assets revived under the Atma Nirbhar Bharat Abhiyan -2 (Equity-driven revival). While Banks are aware that such any additional loan consequent to revision will be treated as standard asset, their reluctance to revive the viable enterprises is absolute risk aversion.

The only saving grace is that sale of securities to the ARC will now attract higher provisioning. This should trigger the thought that by reviving the asset instead of sale to ARC they would gain in provisioning as the asset is likely to be standard asset at the end of one year of revival. 

Monetary Policy viewed from the MSME perspective, is like what GoI proposes, RBI disposes. Apathy towards MSMEs still continues.  It is suggested that the RBI and GoI be on the same page in so far as MSME revival is concerned and second, shorten the period of decision making to just two weeks as against 55 days’ process indicated in the Master Circular of 2016 referred above.

Government of Telangana seems to be taking the lead in the revival of MSMEs. Telangana Industrial Health Clinic Ltd., set up by it, has put on its website, the Learning Tool for Revival and a Revival Pre-pack online for the enterprises to log in and post the details for quickly deciding on the prospects of viability.

Retail Loans:

As regards personal loans, RBI recognising that these loans falling under Retail Loan portfolio will be the next NPA balloon that will blow off, has accommodated the Banks through a resolution plan. It has been the practice of several Banks both in the Public and Private sector as also a few NBFCs to grant the personal loans wherever the related corporate accounts are held by them. Because of slow growth and the pandemic, several have lost their jobs and personal loan segment has come under severe pressure. RBI left it to the wisdom of Banks concerned to invoke the resolution plan by December 31, 2020 and shall be implemented within 90 days thereafter. There will be no requirement of third party validation or Expert Committee, or by credit rating agencies. Board Approved Policy will be necessary, and the resolution plan shall not exceed two years. Banks will have big relief on this score.

This Monetary Policy recognized the economic environment as tough to recover in the immediate short term. At the same time, it failed to provide the real growth impulses in invigorating the MSMEs to the required degree and failed to generate the risk appetite among banks. It looks more worried about the capital of banks than credit to the required sectors at the required speed.

The views are personal. This is an invited article from Skoch Foundation.