If you are a regular in the stock trading, you would have watched the banking stocks steadily falling for six months now. I do not look at the Banking Industry stocks in my portfolio these days. Those stocks purchased through IPOs have just been sitting idle under this category and I would definitely not want to add any banking stocks even on a very low market day, when I normally go out to purchase stocks for investment.

But, why is this situation?

Ever since the farm debt waiver was announced in the last budget, there have been debates on the profitability of PSBs. But the Finance Minister P. Chidambaram was seen reiterating that ‘the farm loan waiver will stregnthen banking‘

Again on the recent inflationary trend, the loans have become costlier and the banks have lost out on the retail and small lending where the recovery has been fairly on time. The low-cost deposits with the banks are sliding down, as number of people with surplus money on hand coming down fast. A small businessman has to close down his low cost deposits on the first attempt and then go fo loans as the interes rates on loand have gone up badly.

The Business Line analyses why and how the banking stocks have hit the low. Read it here.

With all the issues from the vegetables in the market and the stocks in the international market zeroing in on inflation, it is now time that inflation is brought under control. The government need not plan much for the elections if this trend is arrested as the voters will give the government 100% rating and bring them back for sure.

At last Financial Chronicle, published by the Deccan Chronicle Holdings comes to Mumbai.

Any financial bites begin with Mumbai normally. Strangely FC chose Hyderabad and Bangalore for their first release of the financial daily. And more surprisingly Chennai came next.

From last week the daily toed up with International Herald Tribune and the Mumbai edition will have a four page pull out of IHT, says the press release.

The Financial daily has its e-version here.

The emerging ‘concept’ of F – Schools really amused me.

It was in the 1980s, the recruitment in the Public sector Banks was in bulk numbers. Though SSLC was the minimum qualification for a clerical job in a Bank, the examination conducted by the Banking Service Recruitment Board (BSRB) was of a little higher standard that mostly the graduates are students in their final year of graduation could only make it to the next level.

The boom in the youngsters’ ratio in the exployees cadre increased the enrollment for the CAIIB examsa conducted by the then Indian Institute of Bankers, now Indian Institute of Banking and Finance.
the main reasons were :

1. The fresh-out-of college kids could crack the exams easily.
2. The increment in basic pay the Banks granted for completing every stage of the exam (One increment for CAIIB Part 1 and two increments for Part 2)
3. The quick climbing up to the next cadre. Those who completed both parts of CAIIB were eligible to appear for the Officer’s exams two years before their other colleagues could do so)

The CAIIB exams have evolved now to online as JAIIB and CAIIB. Still with a commitment to make the employees better learned crowd.

The idea of B-School graduates and F-Schools have come in much later.
The CFA program by the ICFAI was popular among the bank officers, though the course fee was a bit higher than these officers could shell out for a certification. Later, the label of this program came under dispute with CFA Institute.

Then came a time when banks started hiring top-brand B-School grads. The pay packet however was not to the expectation of the MBAs. So these grads quit quickly to be in their choice of businesses.

But, now, why blame it on the course module saying that it is not a B School certification but a F-School certification is what would go with the Banks. In my opinion, the need of the hour is the adaptability of an individual to the changing trends in the Banking scenario. And the traditional CAIIB, which is an on-the-job learning and training for the bankers is what will go with the need of the banks. The course is designed to elaborate and learn more on what the bankers do on a daily basis at their work place.
But this course should also evolve with the changing times and generations.

Two years ago, there was an exciting news of India and Pakistan agreeing to open bank branches in each other’s country.

The operation is yet to take place and we still keep reading that these two countries plan to open the branches.
Blame it on . . .?

When the banks grow vertically and horizontally, what could be at risk?

Managing the giant size, its operations?
Managing the enormous human resources?
Or framing the policies and updating them periodically?

Actually, none of these is difficult. With the automation, managing any kind of assets and resources is just at the click of a button. Even the MIS need not be physically presented to the management. They can read the reports online when they are prepared.

But handling the heights could pose a touchy problem – about the missing human touch!

“If the keyword is trust, PSBs are way ahead. If the keyword is growth, it’s private banks. Once manned by humans, banks, if Capgemini’s 2006 Retail Banking Report is to be believed, “are losing the human touch”. Technology, which was supposed to make things easier for us, has morphed into a new monster that bites us, bleeds us, irritates us and creates delicious profits for investors.”

We enjoyed interacting with people from different walks of life. At a town like Vellore in Tamil Nadu, where the well-known Christian Medical College is situated, we happened to meet the ‘patients’ from different states, medical representatives from various companies – small and big and doctors, their family. Some used to share the story, some were happy to speak in their mother tongue if the staff knew their language. Good wishes were exchanged.

If you have not read this previous post, you should do it now.I consider those moments very memorable ones in life!

There are drop boxes for cheques (even cash!) these days in Banks to drop the cheques for collecting them for the credit of your account.
That means the trust for the Banking system has gone up among the public. That could also mean time constraint to collect the counter foil. But what happens to the cheques handed over at the counter for a return of a counter foil or those dropped in the drop boxes? How do they get collcetd to our accounts?

We drop the cheques of all possible banks in our bank and get to see the amounts in our accounts a few days later! I used to wonder at this procedure till I saw what happens with those instruments with my eyes.

A small introduction to what is clearing:

The cheques and other instruments are handed over to the original owner bank at a place called Clearing House.

The place where the exchange of instruments occurs and the claims are settled is known as the Clearing House.

But, the clearing house used to be a party house! The staff who carried the cheques to a common place – in this case State Bank of India. Why State Bank of India?

As per Reserve bank of India publications ,

4.3. In India, the clearing system is local and confined to a defined jurisdiction covering all the banks and branches situated in the area under a particular zone. The clearing house is a voluntary association of banks under the management of a bank where the settlement accounts are maintained. Wherever Reserve Bank of India has its office (and a banking department), the clearing house is managed by it. In the absence of an office of the Reserve Bank, the clearing house is managed by the State Bank of India, its associate banks and in a few cases by public sector banks.

Along with the exchange of instruments, we exchanged views on the latest banking policies, the practices in different banks, the opportunities available for knowledge enhancement, the CAIIB guides…

Interestingly a few getting really together – I mean marriages have taken place through those houses!

I feel the fun is lost by the electronic clearing system nowadays!

A great news is here today.

THE central banks of India and Pakistan have agreed to grant permission to two branches of commercial banks to start services in each other’s country, on a reciprocal basis.

Read the news here

A basic accountant will tell you about ‘Other Income’ in any balance sheet.
Any person filing a Income Tax return will also know what is other income.
Here is a totally new idea of Other Income for Banks.

As the interest income for banks is under pressure (it has always been so!) a suggestion to add up fee based income for the banks. The basis is that banks have a huge network and would be able to sell any product to its customers. A legalised MLM through Banks?

If one goes by the volume of network of an organisation, the post offices top the category. Postal Life Insurance is just a ‘diversification’ of services. Soon post offices may be seen selling shares, mutual fund units, may be registration of housing documents?!

The idea of merging weak banks with ’strong’ Public Sector Banks have been on the cards for about a year now. Also on are the discussions about mergers of one PSB with another.

The various studies carried out on this issue had earlier resulted in the announcement by the Union Finance Minister P. Chidambaram that PSBs would be encouraged to merge, in September last.

Even at that time, the Hindu – Frontline went on to write on this issue.
T.T. Ram Mohan, Associate Professor at the Indian Institute of Management, Ahmedabad was quoted thus:

T.T. Ram Mohan, Associate Professor at the Indian Institute of Management, Ahmedabad, wonders why the Finance Ministry “should be hard-selling this idea at this point”. He termed as unfortunate any attempt to merge strong banks with weak ones. “Mergers,” he argues, “must be dictated by the market and decided by bank boards.” To do this, he suggests that the unlisted banks must be brought to the market first. “Once they are listed, we have the benefit of the market monitoring the value of the merger from the word go,” said Ram Mohan.
…. ….. …. …..
If the regional bank, for instance State Bank of Travancore, is merged into a single giant entity, it will not only affect the regional subsidiary but also the parent bank. “The potential for losing out on local flavour is something that cannot be ignored in discussions on mergers,” says Ram Mohan.

But now, after a year, the PSB Unions have again come on the issue very strongly.

Mr C.H. Venkatachalam, Convenor, United Forum of Bank Unions, said, “We do not agree with the view of the Finance Minister that our banks need to be merged. Banks cannot become strong only by just mergers. Even if all the 27 public sector banks get merged into one, we will not be equal to any of the world’s big banks in terms of capital or resources. The total business of the merged banks will remain the same.”

The loss of local flavour, as quoted by the IIM faculty is really a serious issue that the banks have to bear in mind. Most localites are loyal to the business that have roots close to their homes.

Also the Union leader’s point that merger alone does not make any bank stronger is very valid under the present economic situations.

We have to wait and watch the Government’s plans to see if the whole idea is with a background of selling local banks to foreign giants.

I have seen a merger taking place at the Bank where I worked.

But not from the table in which the documents were exchanged. But sitting at a local controlling office down south and watching a Delhi based bank merging with a Karnataka based Bank.

That was a merger of Lakshmi Commercial Bank with Canara Bank. The effects were not fully felt at my level. Just a level above, the staff felt it. The transfer to the earlier LCB branches with a different culture and working procedures was the top problem. But the make-up was very quick and entire process went on very smooth. It was all perhaps because of the strong base of the bigger bank; the values the bank had and the policies they followed scrupulously.

Today when the finance minister spoke about the mergers, it just triggered off my memories. The scenario has not changed. But yes, the views have changed.

“However, he was of view that the initiative for consolidation have to come from the management of the banks themselves with the Government playing a supportive role as the common shareholder.”

It means a lot – the intention of the bank initiating the merger should also be to protect the interest of the smaller bank’s clients (both depositors and the debtors). What should not be forgotten is that consolidation is the key to make the business flourish.

IMP. NOTE : This blog was started on Sep.17, 2005. The above post is typed and inserted into this blog from my diary entry of the same date as the date of posting.