Last Modified: Sat, Mar 03 2018. 11 26 PM IST

An insider's account of the changing face of banking

From the late 1970s to the present day, a career banker describes the shifts in India's banking industry

Photo: Bloomberg
O.P. Srivastava

I started my career at a nationalized bank almost at the end of the year 1977. Even in those days, this was one of the larger banks, and I remember getting overawed by its high-ceilinged entrance hall, huge staircases and the large number of people working at its headquarters in New Delhi. Amid the vastness of its space, the impersonal maze of cabins and the suffocating corridors, one was left to find one's own way out. 

After a brief training in the basics of banking—during which we were introduced to the Black Book, which contained a set of rules to be held sacrosanct, the guiding principles of a banker's life—I was sent for on-the-job training to a branch located at Lyons Range, Kolkata. This branch was situated close to the stock exchange and was surrounded by a number of offices of transport agencies. It mainly catered to small and medium-scale businesses.

Those were the days when probationary officers were seen as intruders by the employee unions and the attitude of the staff was generally not cooperative in terms of sharing of knowledge with the so-called "direct officers".

On my very first day at the Kolkata branch, I was asked to sit in the cash cabin and assist the cashier. The branch had a large number of accounts of small businessmen, especially transporters and brokers, whose representatives used to come to the branch carrying gunny bags stuffed with small-denomination currency notes. They just dumped the bags at the counter, collected a "kuchha receipt" and left. The cashier issued the kuchha receipt without counting the cash inside those bags. These small chits were later on replaced by the "pucca" receipts, which they all came to collect in the evening.

The cashier was a middle-aged, stocky Bengali gentleman, who manually sorted, counted, bundled, labelled, tallied and stored all of the cash collected during the day with the help of a single peon. I looked on with dismay at the "detached" manner in which so much cash was handled.

This was the daily routine at the branch and during my three months of stay at the branch, I never heard any customer pointing out any discrepancy in the amount of the cash deposited by them and the number written in the pucca receipt by the cashier.

The cashier used to finish his work by 4pm every day. After that, he moved from one table to the other offering help to anyone who was having any problem in closing his or her work for the day. He seemed to know the work of every department or the desk. He was also acknowledged as an expert in tallying books. 

To this day I can keenly remember how he always did the totalling twice—one from top to bottom and again from bottom to top, running the tip of a pencil from one end to the other. His ability to find mistakes in the numbers was amazing. Oftentimes, during the day, he was called by the chief manager of the branch for his advice on a particular client. Everyone from customers and borrowers to the members of staff trusted his advice. 

This was my first exposure to banking, where trust and integrity in dealings were taken for granted by one and all. This faith was the foundation on which the edifice of banking was built upon.

Lessons in leadership

At the same branch, I met one tall, and fair gentleman Mr Chopra, who was the chief manager of the branch. He had recently come from North India and was trying hard to grapple with the errant ways of the small-time business clients of the branch. My letter-drafting skills caught Mr Chopra's eye, and he started giving me the task of writing all the important letters going out from his desk. He took me under his wing and gave me all the challenging cases to handle. 

It is from him that I learnt the basics of leadership. His genuine concern for his juniors and his ability to remain fair in all his dealings, especially in the matters concerning the staff, made him work successfully in an environment which was considered hostile for an "outsider". Following his footsteps, I also became a part of the local family of the staff and forged a few relationships that lasted for a very long time during my career as a banker.

Another incident from my training period which has remained etched in my memory. I had gone to the branch office in Dadar KC, Mumbai, to be trained in retail banking. Within a few days of my arrival in Mumbai, I developed jaundice. At first, though, I did not notice, since I did not know anyone in the city and was living on my own. 

Then, one day, the branch manager, one Mr Jayafalkar, happened to notice that I was not looking good. He immediately took me to a local Ayurvedic doctor and on coming to know that I had contracted jaundice, he took me to his home and made me stay with his family till I was completely cured. For Mr Jayafalkar, whatever he did for me was simply a part of his duty as the branch manager.

Relationship banking 

After completing two years of training at various offices in India, including three months at a remote village called Belada in West Bengal's Midnapore, I got my first posting at the Aligarh branch office in Uttar Pradesh. The industrial town was famous for its small-scale industry of brassware and locks. There I was posted as the officer in charge of the foreign exchange department, which dealt with importers and exporters. (The manufacturing unit of the famous Tiger brand of locks was one of the clients of this branch.)

A few memories of my tenure at this branch have stayed with me. One such memory is of a pair of white revolving chairs. Only the branch manager and the assistant manager had these chairs. The rest of the staff was given wooden chairs, which had their seats and back knitted with white plastic strips. I used to look at those revolving chairs with barely concealed envy, dreaming of the day when I would get a chance to sit on one of them, casually extending my hand to pick up the cradle of the ringing telephone kept on the side table. 

The branch manager was a handsome Punjabi gentleman, who treated and joked with the clients as if they were his closest friends or relatives. To my great surprise, elderly male customers would ask for his opinion in matters as personal as their children's weddings. Businessmen in town were said to consult him about the financial standing of other businessmen before forging alliances of marriage. In those times, a branch manager’s word held a great deal of weight in such personal matters too.

The third thing I remember about my stay at this branch was those dirty files of cyclostyled papers called the Circulars, sent to the branch by various departments at the head office. In those days, these were the only source of knowledge or reference material for the staff working in a branch; . These circulars were necessary to keep one updated with the latest changes in the policy and procedures of the bank. Without referring to them, there was always a risk of doing something wrong especially in the areas like foreign exchange, where the prescribed margins on the opening of letters of credit were changed very frequently. 

All these circulars were kept in the custody of a person called a datary and made available to you as and when required. To my surprise, I discovered that most of the important circulars were never available in the files maintained by the datary of the branch. I had to go around and consult various members of staff in the branch in times of need. 

Later on, I came to know that it was a practice adopted by few bright and upcoming young fellows to flick these important circulars and keep them at home, so as to gain importance in the eyes of the management. By becoming the only source of information within the branch, they were given extra patronage by the management, thereby increasing the chances of their promotion. 

These few incidents exemplify the kind of banking that was practiced in India in the 1980s and 1990s—relationship banking, as it was called.

After two years of hands-on training in various disciplines of banking, a young officer was put in a challenging role as a "deputy leader" kind of a role in a field situation. By the time an officer had spent five years or so in a bank, he or she would have gained knowledge and understanding of all functions of banking—deposits, lending, forex, accounts and audit, systems and processes, banking laws and regulations—and more importantly, would have insights into practical banking. 

Besides this, he or she had also acquired the soft skills in areas as such as leadership, relationship management, public relations, etc., and would be ready to take up the leadership role. The varied kind of exposures and on-the-job training created a well-groomed and confident banker, with basic ethics and disciplines of banking engrained in his or her personality. 

Brick and click

In the early 1990s, I left the safe and slow-moving world of public sector banking and jumped over to a private sector lender.

With the coming of a wave of new private sector banks starting in the mid-'90s, the banking environment in India started changing, and fast. The private sector banks wanted to grow rapidly, and their focus was on the latest technology had to offer. 

Technology gave them reach, size and volume of business comparable to decades-old state-run banks. Coupled with some savvy branding, this new generation of banks became the darling of the industry. The brick-and-click model of banking became talk of the town and slowly public sector banks also started adopting these new technology-based means of doing business.

There were a number of benefits of this technological revolution. It took banking to the customer's doorstep. ATMs mushroomed at every nook and corner, and gradually, banking went online. Today, mobile phones is taking banking to every corner of India. 

Technology also helped the banks to the growing volume of transactions; banks created a separate technological back-end, with a number of dedicated processing centres. This delinked processing work from the branches, leaving the front-end staff with more time to devote to customer interaction.

Hybrid model of banking

With the gradual induction of technology in almost all areas of banking, a hybrid model of banking started emerging, where one part of the "processes and structure" was borrowed from traditional banking and the other part had new processes and structure based on technology.

Let me give an example. In the traditional banking model, the processing of a transaction was done at the field or the branch level, whereas in the new hybrid model, the processing was delinked and centralized in a technological warehouse away from the field. These centralized processing centres were mainly run by data-entry operators, who were recruited in large numbers and at low cost, helping banks reduce expenditure on manpower and operations. And as mentioned above, this freed up a large amount of the time at the branch level.

Essentially, a banking transaction had consisted of following components: a) customer acquisition, b) customer assessment, c) documentation, d) processing, e) sanctioning/approvals, and finally f) delivery. In the traditional model of banking each of these steps had a team or an individual who would be solely accountable for the work.

What technology did was absorb, centralize and warehouse some of these components of a transaction, beginning with the setting up of the processing centres, where the processing, the most time consuming part of any banking transaction, was aggregated and technologically handled.

This was followed by creating technology-based models for the assessment part of the transaction, which basically involved the ticking of boxes. The branch-level staff acted just as a point of collection for the documents, and these papers were transmitted to the centralized warehouse, which processed them using a technological model. 

Slowly, other components of the transaction, like customer acquisition, were also converted into technological tools. These tech-based interventions had two obvious advantages: they increased the speed of decision-making and reduced the cost of processing or operations.

As profit margins in the business were coming under pressure, the reduction in the cost of operations using these technological interventions was a great relief to banks, and was aggressively encouraged in the name of introducing innovative banking.

The fallout

But what this also did was to gradually reduce the role of the bankers—or of humans—in the whole process that is banking. Over a period of time, it reduced banking into just two compartments: selling and processing. The other functions/departments of the bank, like accounts and audit, inspection, human resource development, risk assessment and other support functions, were downgraded in terms of importance. With the changed model of banking, the profile of recruitment of manpower also changed. The newer generation of banks in particular started recruiting in large numbers for their sales force and data entry operations to feed to the growing requirements of these two verticals.

Increasing competition in the banking industry further increased the pressure on the margins or the profitability of the banks, and coupled with the growing issue of increased provisioning for bad loans, the pressure to reduce the cost of operations increased immensely. A cheaper workforce overall was a thus a relief to banks, though it resulted in the dilution of quality of the manpower.

This gradually led to change in the quality and the profile of the people joining the banking industry. Banking became the lowest preference at the reputed management institutes.

Another effect of the increasing role of technology was the breaking up of banking into compartments that could be delinked and managed as separate entities. This led to the introduction of a new phenomenon in banking industry—outsourcing. 

Functionally, these outsourced units worked as extended arms of the banks but were technically and legally speaking independent business units. This model helped the banks to save an additional component of administrative costs (for instance, these outsourced departments/units could be housed at cheaper locations).

The decongestion at the branches by taking away of the processing etc. resulted in creation of spare capacity with the sales force. In order to use this, some banks began to sell third-party products. Without increasing costs at the branch level, banks were able to earn a substantial income by selling products like insurance policies and mutual funds from other entities. Some banks started even sold gold coins. This then was yet another new kind of banking, one where banks acted as agents working on commission for other financial institutions.

FMCG model of banking

Gradually, from the historical model, where all the departments were of equal importance, banking was reduced to a model where it could be done just by a having brand and a technology-based connectivity platform. The rest of the functions could be outsourced, including customer acquisition, processing, recruitment, inspection, recovery and infrastructure, 

Banking today has been reduced to a transaction on a mobile phone. No wonder mobile operators are trying to become bankers. (Ironically, customers have also started changing their banks the way they used to switch between mobile operators.)

Because of the the fragmented model of today’s banking and due to the reduced human interventions, the monitoring and supervision structure in banks has deteriorated, resulting in more incidents of leakages, deviations, violations and manipulations.

The long-term outlook of building trust, relationship and stable business partnerships with customers has become a thing of the past. All a bank is focused on doing today is achieving the quarterly targets. The institution of banking is slowly getting replaced by what I call the FMCG model, which primarily rests on a sales transaction, which take a few seconds to execute. 

FMCG, or fast-moving consumer goods, is jargon for products such as toothpaste and biscuits that are sold relatively quickly and in large volumes. An FMCG company does not need an active engagement with its customers on a long-term basis, apart from their affiliation to the brand. It does not need to build a partnership that goes beyond the short duration of the transaction, because it realizes its consideration or the value in those few seconds. 

But in a banking transaction whether it is borrowing or keeping a deposit with a bank, the consideration accrues to the bank or the customer over a long period of time, whether it is the repayment of a loan by a borrower or the repayment of interest and the deposit to a customer. Here, the duration of the transaction is much longer than a transaction in a consumer goods company, and thus the two-way relationship between the bank and the customer needs to be sustained and nurtured over a long period time. 

This cannot be done by using technology alone. It requires human interaction in the exchange of information and its filtering, supervision, review, course-correction and decision-making. Therefore, let us not overemphasize the role of technology and underplay the role of people. Enhancing the role of technology at the cost of lowering the quality of human resources development in the banking industry is like hitting at the foundation of banking. You cannot build a bank only from technology, but you can build people who use technology to build a bank.

O.P. Srivastava has spent 35 years in public and private sector banks. He was responsible for setting up the technology-based infrastructure for one of the leading private sector banks. After retiring, he has been making films and received the National Award 2015 for the best biopic for his first film Life in Metaphors.

Topics: BankingIndian Banking sectorBrick & Click model of bankingHybrid model of bankingTechnology in banking

First Published: Sat, Mar 03 2018. 11 18 PM IST

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