Riyaz Ahmed Bhat
In olden days the financial business was considered a very simple procedure of earning money without any complexities and a joke used to be cracked that procedure or business plan involved 3:9:3. This would mean borrow at 3% ,lend at 9% and go play golf at 3. But with advent of industrialization of this sector financial business has evolved with new complexities which involve various types of operations of financial industry and one of them is Banking. Since banking has evolved from its inception and now runs on a complex business model, hence always goes through smooth and turbulent waters keeping in line with happenings in economic situations prevailing at different times. These have a direct effect on yields of investments made in the sector hence the performance of the banking business needs to be studied in accordance with basic fundamentals as applicable to any other business.
There is a common saying that during a bad patch of business one has to survive by living with a principle that states, “Penny saved is penny earned.” This reflects the applicability of important basics of cost cutting in any running business which may be going through rough weather at a particular time. As all of us are aware that Indian financial industry including banking has been going through turbulent phase in the recent years and the reason for this has been continuous economic slowdown. This has affected the industrial production, marketing of the produce and is compounded by decelerating services sector. Since the Agriculture sector of the country had already been under stress due to farmer distress hence the result has been that the banks are laden with a huge pile of nonperforming asset (NPA) portfolio. This portfolio, not yielding any income for the banks, is also to be provided as per prescribed rate of provisions. In such a situation the banks are now left with low income and increased expenditure which has affected the profitability. This became evident in March 2017 when some banks reported huge losses and increased NPA ratios which brought them under enforcement of Reserve Bank of India’s Prompt Corrective Action Framework (PCAF). The invoking of this regulation by RBI was followed by preparing of a viable turnaround plan, by these banks, for submission to the RBI so that RBI could advise the future course to these Banks. Most of the banks prepared the turnaround plans around the legacy of “Cost cutting and profit maximization” in line with universally accepted basic fundamentals. But, as is generally observed, in light of cost cutting the top executives sitting in Managements of Indian Banks seem to offer sacrifice of sweet dish after dinner while lower level bank staff is expected to skip the lunch. Though there are also reports emerging that the banks have started to cut down the costs by initiating abolishment of non productive investments like rationalizing number of controlling offices, merger of loss making branches and getting out of non core business areas yet numerous other ways, which can play an important role in saving the costs for the banks without affecting their business modules, are still found wanting.
These steps have been in regular practice of the banks and include Increasing CASA Deposits, Mobilizing Short term deposits and Increasing Float Funds on one side while Bringing down of Staff costs, operational costs and transaction costs on other side. But it is mostly observed that Banks have been laying overemphasis on cutting staff/operational costs and in this direction a recent news report has stated that one beleaguered public sector Bank (PSB) has decided to close down its 700 Automated Teller Machines while as a preposition by the Union Government for swap of PSB branches has been under consideration. This approach is likely to disturb the efficiency of delivery of banking facilities to general masses. Most of the times it has been also advocated that outsourcing and contractualisation of permanent jobs in banking processes has resulted in reducing the establishment costs yet increasing trend in banking frauds has also brought into focus the vulnerability of banking system post outsourcing or contractualisation scenario. Presently over emphasis on cutting staff costs campaign is depicted by go slow on recruitment of new staff which has become order of the day. This has burdened the existing bank staff who not only have to share the work load of retiring colleagues but also the increasing load of Government schemes which are now being implemented through banks. As was highlighted recently by the State Bank of India Chairperson, the overburdening load of enrollment in Adhaar and taking forward the mission of financial inclusion and digital India has limited capacity of these banks to do the business. Though by use of technology Banks have been trying to improve the efficiency in the internal processes besides in delivery of facilities to their clientele, yet a lot of infrastructural developmental initiatives need to be taken before banks are able to achieve efficiency in both segments.
The initiatives of technological improvements by the banks have definitely helped them to increase the productivity per employee and also in bringing down the transaction costs. Recent announcement of CEO ICICI bank has given a new dimension to introduction of technology in banking. While declaring that The Bank plans for automation of backend processes by introduction of robotics the bank was moving towards reduction of human resource to income ratio. Such a technological intervention is now being considered as first step for introduction of Artificial Intelligence (AI) in the industry.
Summing up the discussion, it is factually correct that these type of measures are helping the Indian banks to overcome the burden of escalating expenditures by controlling the staff costs but the practices adopted by top executives in beleaguered Banks are not perceived by operation level bank staff in a nice way. This is because that some Bank Managements are using this opportunity to cut the staff costs selectively at lower level without disturbing the privileges and incentives for executives at higher levels.
The common complaints of lower rung staff has been that the executives asking the lower staff to practice austerity in these difficult times are having undisturbed joy rides with seven star hotel stays in the name of discussing the bad situation of banking caused by their own misgoverning decisions. The conclusion drawn from the situation looks that there is disconnect between higher and lower level of Bank staff because lower staff looks handling by top executive class suspiciously. They perceive the present situation is living by the saying that subjects have to fast to save the grain while queen and courtiers are the exception. To correct this perception the Managements need to take corrective measures by starting communicating with staff at all levels otherwise their visionary plans will remain dubbed in official files waiting for implementation by operational staff on ground.
(The author is General Secretary Jammu and Kashmir Bank Officers Forum )
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