Banking management in the IT era
B. S. WARRIER
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Market dynamics indicate the need for tech-savvy personnel to man the banking sector
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— Photo: AFP
Sea change: The transformation of the Indian banking sector is oriented towards the common man.
Banks play a vital role in the economy of any country. A bank is much more than “a financial institution that accepts deposits and channels the money into lending activities”. Its broad functions cover areas such as credit intermediaries, bank-related operations for customers, electronic funds transfer, cash management for corporate customers, maintaining endowment funds, keeping safe deposit lockers, managing trust accounts, and underwriting securities. In dev
eloping countries such as India, it plays a pivotal role in national development.
The word ‘bank’ is derived from “banco,” Italian for bench, as the Lombard Jews in Italy kept benches in the market place, where they exchanged money and bills. If a banker collapsed, his bench would be broken up by the people; hence the term ‘bankrupt’.
The Preamble of the Reserve Bank of India, which is the foremost monitoring body in the Indian financial sector, indicates the basic functions of the Reserve Bank as: "...to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage." It is a prerogative of the RBI to regulate, control, and inspect the banks in India.
Big changes
The nationalisation of major banks in 1969 ushered in big changes in the style, approach, and functioning of banks, as indicated below.
The main priority was making profit by collecting deposits and giving credit. This shifted to functioning as an instrument for desirable social changes.
While advancing money, the focus was the person to whom money was lent. After nationalisation, the purpose of the advance gained importance.
The common people got priority over the elite. The emphasis moved from profit to service. Small transactions became as important as large transactions.
Agriculture became as important as industry in the eyes of the banker. New styles including mechanisation and automation were evolved.
The overemphasis on urban areas disappeared; operations spread to the rural sector. Modern trends in structural organisation and management were invoked. Training schemes were evolved to move in step with changing times.
Against these merits, there are shortcomings as well. Enthusiasm for development banking has often witnessed the sacrifice of basic banking principles of prudential norms, profitability, and risk management.
The gross and net non-performing assets as percentages of advances leave much to be desired.
There is an element of truth in the wailing, “Basking in the sunshine of Government ownership that gave to the public implicit faith and confidence about the sustainability of Government-owned institutions, they failed to collect beforehand whatever is needed for the rainy day. And surfeit blindly indulged is sure to bring the sick hour.”
Technology in banking
The emergence of new generation tech-savvy banks in the early nineties set in motion a new style in the banking system in the country at certain levels of operation. There are substantial contributions from the nationalised, private, and foreign banks in the country.
Indian banking is fairly mature in terms of service, product range and reach. However the focus of private and foreign banks is still the urban sector. There are adverse comments on some of their styles.
“Given the multi-tier financial system of our economy, and the complementarity and synergetic relations among these different tiers, it is difficult to isolate the efficiency of banking system from that of the long-term financial institutions, co-operatives, rural banks and non-bank financial companies.
“A more meaningful reorientation of objectives and functions of various tiers of financial institutions would be necessary in dealing with the long-term issue of enhancing competitiveness of the system as a whole”, says Bimal Jalan, former Governor of the Reserve Bank.
Strides in technology have blessed us with several gifts including ATMs, Mobile Banking, SMS Banking and Net Banking.
New challenges
The big leaps in Indian economy being contemplated are sure to bring forward new challenges in financial engineering.
The services of properly trained professionals are essential for ensuring the efficient discharge of banking functions, in tune with the emerging competitive dynamics of the market and consequent demands.
The main facilities for training in bank management in our country are:
National Institute of Banking Management, Pune.
College of Agricultural Banking, Bankers Training College, and Reserve Bank of India Staff College, which are part of the Reserve Bank of India.
National Institute for Bank Management, Indira Gandhi Institute for Development Research (IGIDR), and Institute for Development and Research in Banking Technology (IDRBT), all of which are autonomous institutions.
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Milestones
1786 - The General Bank of India (defunct)
1806 - The Bank of Calcutta, changed as The Bank of Bengal in 1809
1840 - The Bank of Bombay
1843 - The Bank of Madras
1861 - Paper Currency Act
1870 - Bank of Hindustan (defunct)
1921 - The Imperial Bank of India (amalgamation of the three Presidency Banks)
1935 - The Reserve Bank of India, as the central bank
1949 - Transfer of Reserve Bank to the Government sector
1949 - The Banking Companies Act / Banking Regulation Act
1955 - The Imperial Bank of India became the State Bank of India (first nationalisation)
1961 - Insurance cover for deposits
1969 - Nationalisation of 14 major banks
1971 - Credit guarantee corporation
1975 - Regional rural banks
1980 - Nationalisation of seven more banks
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