A clear idea about Clearing House

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!

India – Pakistan banking links!

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

‘Other’ Income for banks

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?!

Bank employees’ unions not for mergers

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.

When mergers take place . . .

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.