Banks’ Powers and Capabilities on Test-bed (India centric) !

Need to cut

     Soon we will see a mushrooming growth of banks in India thanks to the proposal paving the way for New Banks ( approval likely in January 2014 )  and New branches by the existing players in this sector.  Banks are already buckling down to face the competition.  It is strategy time for them.  It is also time for a sneak peek at the challenges facing the banks and the path they need to tread wisely.  Here,  I lay a short map on the possible course to follow and take :

     Banks need to show profits while at the same time lending judiciously to growing sectors of economy to be able to stand on their own feet.  Defensive and Offensive combat actions call for a creative and aggressive set of strategies to encourage growth promoting the reform trajectory to move forward unhindered. 

     With the monetary ( and fiscal to a lesser degree) initiatives fairly and firmly entrenched in the system, banks today are facing the daunting task of lowering the lending rates in an effort to promote growth and investment.  A not so uncommon scenario  is the skepticism and reluctance of managers  to the lending initiative in general combined with a sense of  ‘aboulia’  in making the right choice of borrowers.  Compounding the task is their inability to unwind  the nasty  NPAs  in the woodshed.  It requires a bold and a newfangled approach to regain confidence in the present critical time and engage  aggressively in stepping up the efforts.

     For this to be realized effectively it is prudent to adopt a two-pronged approach as follows :  (a)  an aggressive promotion of Small & Medium Industries;  and  (b) a mild promotion of Big industries/sectors.  My logic for this is clear.  In the present circumstances of accelerated tech development and adoption  plus  the competitiveness due to the opening of more banks/branches,  the need to adapt for survival and growth/prosperity is paramount.

     A characteristic enabling them to be adept at this is their “responsiveness”.  Small and Medium organizations can adapt better to the prevailing credit situation nimbly. They can even trim their manpower with little conflict and tension.  They can also achieve growth in a relatively short period.  It is easier to grow from  1000  to  1100  ( an increase of 10%)  than from  1 crore  to  1.1 crore (again an increase of 10%);  which means for the big players to grow to the same size as small players, the numbers will have to be in crores.  The comparison is in absolute terms,  a simple arithmatic  for the discerning.

     Given the fast tech absorption-cum-training  opportunities and progress through selective support (available easily now through software packages etc.,)  small and medium organizations can even outpace others by a good margin.  Big players need not always be the smartest and strongest eternally.  With the impending stringent regulations and keen oversight,  banks have their tasks cut out clearly,  and hence need to judiciously exercise the above options with confidence.  The success possibility is plain commonsense and not empirical.  If, say, 7 or 8 out of 10 individuals buy a particular brand of car;  if 7 or 8 out of 10 individuals witness a particular movie;  if, say, 7 or 8 out of 10 parents admit their wards in a particular school;  if, say,  7 or 8 out of 10 individuals like a type of music  –  all within a strata of society,  then it becomes a NORM and becomes the right thing to do.  Extending this logic,  if, say,  7 or 8 out of 10 banks begin disbursing loans to a specific sector, then that will become the norm and others will follow suit.  This can simply boost the investment,  increase production and employment.  Stringent observation of credit worthiness and performance as yardsticks for allocation of funding shall not be sacrificed,  however.

     When times and rules of the game change drastically, as I foresee for the near future, ( with new banks opening )  it is imperative that all players, small or big,  stay in the game;  keep alert;  and adapt themselves to the new order.  ‘Cut your coat according to your cloth’ is the mantra for Banks. This will impact growth positively and contribute to our economy.

     There are some essential  requirements  to effect this strategy and I will explore them separately in due course.

     “Dieu avec nous”

     Sunday,  November 10, 2013  –    9.00  a.m.  (IST)

     Tidbits   :    “There is one thing about Life : Whether you are rich or poor, it’s always good to have plenty of money in the Bank.”

     Try this on your banker sometime :    Put 50 Rs or $  in the bank and make with drawls as below:

                                                                     Draw out   20,    Leaving   30

                                                                     Draw  out  15,    Leaving     15

                                                                     Draw  out     9.    Leaving    6

                                                                     Draw   out    6,    Leaving    0

                                                                     Total             50,    Total        51