Banks and banking

Branch Banking – A Cat With Nine Lives

Posted by admin on March 22, 2010 at 6:54 am


Branch Banking – A Cat with Nine LivesDr. Nicos Rossides: CEO MASMI Research GroupBud Taylor: Director Consulting MASMI Research GroupIntroduction Branch banking is dead!  Technology is killing the retail branch!  The Internet rules!  Younger tech savvy customers are taking over as the brick & mortar customers die off!Maybe.   But to-date we have not quite lopped off the head of the face-to-face banking Hydra.   Things may be different in twenty years, but they’re not dramatically different today. But we like being in denial.   Every time we are confronted with evidence of the survival of branch banking we find ways to dismiss it.   For example, research in the UK published by Deloitte & Touche in September 2002 found that 80% of bank customers use the branch, and 52% regarded it as the preferred channel. Similarly a Gallup Poll conducted in the US in April 2003 found that 83% of Americans had visited their bank at least once a month on average over the previous year. It is easy to disregard these studies – we can dismiss them as dated. When we update the studies we get some indications as to the impending demise of branches. For example, an American Bankers Association survey in the summer of 2007 found that 36% of U. S. consumers use branches as their primary banking method. Is that the death knell?  Not really.   That 36% is still the largest group for any one channel. Online banking came in second at 23%, followed by ATMs at 21%, mail at 8% and telephone banking at 5%.   Damn, thought we had them! Ok, Ok.   Branch banking still exists, but is it just for the old and infirm? You know, those people who have a difficult time getting around and would find it most convenient to do their banking from their home.   Yes, that group.   Well, maybe they are the ones holding onto the legacy of the past, but does that mean that young people don’t want to do their transactions in a public location? The evidence only confuses matters further. The 2007 American Banker’s Association survey found that those who go to a bank branch are generally older folks; but still, a substantial 25% of those under the age of 34 side with the older crowd and prefer to do their banking in person.   When will these youngsters learn? Even if we take a somewhat narrow look at branch banking in New York City we come up with the same trend. In September 2007 the New York Times reported that branch visits decreased by 11. 5% between 1995 and 2000; yet they increased by 28% between 2000 and 2006.   What can we conclude from this? Many things, but the imminent demise of branch banking isn’t one. If we extend our scope of vision beyond banking we find that younger generations like physical retailing even in their technology world where you’d think they would always gravitate to online purchasing for the latest electronic gadgets.   That’s not the case.   Apple’s retail stores are a magnet for younger consumers, and this is turning out to be good business.   These stores now contribute close to $1. 25 bn. to the company’s annual revenues of $6. 2 billion and rising – with a profit margin exceeding 20%.   That’s huge by retailing standards. Of course, we need to be careful here.   Is it really possible for transactional banking to rival Apple’s retail experience?  It may not be possible, but it is a good target. Why Don’t Customers Comply with the Efficiency of Technology?So, as much as we try, we can’t make the case that retail branch banking is dead in the US, in Europe, or in Emerging Markets.   It may be dwindling, decreasing, or diminishing, but it’s not dying.   That may be good news for customers, but it’s bad news for bank executives.   Branches are the most expensive way of conducting transactions.   Computers were invented to process millions of transactions at centimes per transaction.   Do this from your house, or car phone, please!  You don’t need to go to a building that houses friendly people.   Banks have to invest capital in information systems and technology to do volume processing, but they’d prefer not to continue the capital drain into structures and operating expenses for people. Why don’t bank customers just “stop” using branches?  Why don’t they follow good business principles and complete their transactions efficiently, by machines?  Well, MASMI research demonstrates the hypotheses that trust (a somewhat elusive yet critical notion) is an important driver of choice; and trust tends to be delivered better by people than by machines. “Banking”, read that as “my money”, is so important to customers that they want to entrust a personal transfer of their wealth to a human being – on the assumption that a person understands the value of the transaction, whereas a machine only sees it as a transaction. This is an interesting hypothesis and a body of MASMI research corroborates it.   We see that customers want more than a transaction; they want to personalise their relationship with the bank. This desire for a relationship may be stronger in banking than in many other business sectors because banks have high switching barriers.   Customers are fundamentally averse to artificial constraints as a way of doing business – they want choices.   When customers don’t have choices, they want to be compensated. When it comes to banking, the compensation is the personalisation of the transaction.   Customers tend to be saying, “…I may not be able to easily put my money somewhere else, but I can make my bank provide personal accountability when I want it!  I want to be sure someone is handling my money – not just a machine.   I want to see human beings, so I can relate to them, and I don’t want to travel across the city to a strange neighbourhood to find them.   I want them down the block, at the corner. ” Banking should see this as a huge opportunity.   Relationships are the essence of customer loyalty and they have fallen into the banks’ lap.   Banks that continue to build their business on faceless transactions will lose in an increasingly competitive world.   The push for faster, better, cheaper is a siren call.   In commoditised banking only one competitor is allowed to dominate at any one time – until someone else shaves a point off a transaction.   Customers are giving us the answer to these ever-decreasing concentric-circles of cost reduction.   They want a relationship.   The question is whether we’re willing to listen and can provide this cost effectively. The bank that listens will win.   It will keep its customers who will purchase more and refer the bank to others.   For the foreseeable future, banks will need to continue to invest, albeit wisely, in their branch network.   The fact that branch banking is expensive is irrelevant – it has to be done. Since you have to make the investment, doesn’t it make sense to maximise the return in a branch development strategy?  Of course it does!  So what do we do?  We have to meet the customer expectations for two things: excellence in operational mechanics (the rational dimension), and creating engagement in relationship dynamics (the emotional dimension). Customers want more than a “painless” transaction Our banking executives are fine with the operational mechanics part.   They understand this, they can control it, it’s right brained. Banks have a good measurement handle on their missions from an internal, transactional point of view.   They have numbers and they know how to manage by the numbers – even from a customer perspective. They immediately go to defining and implementing best in class metrics, like:o    Efficiency to measure the relationship between inputs and outputs.   That is, what does it cost to complete a transaction?  How many tellers does it take to serve 100 customers?  How many square meters of floor space is required per 100 customers?  How much computer time does it take to process a transaction?o    Level of service that brings time into the equation, like turnaround. Time needed to complete a transaction?  Time needed to resolve an issue?o    Quality of service that brings accuracy to the table.   Number of error free transactions?  Number of complaints resolved at the first level? These are the essentials. We know how to measure transactions, identify service gaps, and take corrective action. But these essentials are only an ante.   This is taking “pain” out of processing; but this isn’t playing the whole game.   This isn’t where we should stop.   Yet, often managers do just that.   They don’t want to go further.   Stopping here is comfortable.   But stopping here doesn’t bring “gain”, and that’s how banks can differentiate themselves. Differentiation is all about enhancing the dynamic relationship that customers have with their bank – and the focal point of this relationship is the branch.   Sure, we can ‘humanize’ the IVR system by recognising the caller by name; and we can evoke an emotional connection to a website by embedding your avatar into the transaction. However, how effective can a machine or technology be in this regard?  At what point does clever technology fail to overcome customer cynicism?  For the present, at least, our research says that most people prefer to interact with human beings, not machines.   What is this customer group looking for?Customer Centred Business StrategyAt MASMI we know that once customers have their rational needs satisfied then they’re willing to enter into a relationship.   Something that is emotional and personal.   There is a huge body of research and literature to support this belief.   Often the proponents have widely different perspectives on how our rational and emotional beings interact.   For example, Clotaire Rapaille presents the thesis of our “reptilian hot buttons” and argues that our reptilian emotional brain always wins.   Antonio Damasio comes from the point of view that emotion and reason are not separate, but are quite dependent on each other – neither leads nor follows.   Bank branches may not resolve these positions, but they need to address the point of agreement, that emotions matter! There is a relationship among our memories, our emotions, and our behaviours. The need for an emotional connection while banking will differ by customer.   It’s not critical for everyone; it’s likely strongest for the people who keep going to branches.   So, if we’re going to spend money on a branch strategy, how do we make the best of it?  How do we tap into the emotional connection that customers seem to want?First, we need to realign the banking business model around the customer. This might seem to be stating the obvious, but, in fact, traditional service models tend to be focused on optimising back office efficiencies with insufficient attention paid to the front office side of the equation. MASMI research shows that high performing businesses put the customer at the centre of their strategy.   They articulate their strategic intent based on an analysis of customer needs and then build their key operational capabilities in alignment with that.    They recognise that the heart of their business is to provide pain free transactions that are infused with connectors that evoke emotional responses from customers.   The strongest way to do this in a bank is face-to-face at a branch.   A branch is more than a building – it is a stage where we can create a performance, an experience for our customers, where we can connect with real people.   But we need to know what buttons to push.   Research can give us some answers. Reliable customer feedback is difficult to obtain as even complaints by customers do not represent a particularly reliable benchmark – for many reasons, not least of which is the fact that customer tend not to complain, even after bad experiences.   To get around this barrier we use a number of research methods to align the internally focused “customer service standards” with the externally focused “promise to customers”.   These methods include strategic customer loyalty research programmes aimed at understanding drivers of customer behaviour and corrective actions; performance tracking of transactions; and mystery shopping to monitor whether the promise to customers is being delivered. All of these methods are aimed at uncovering the unarticulated needs held by customers that drive them to a face-to-face relationship at a branch.   What we have learned is that loyal relationships with customers come down to an activation of the person’s senses about their deeply held conviction of what a bank must be.   We all know the five senses that activate emotions.   They are seeing, hearing, feeling, touching, and smelling.   These have to be matched with the customer’s personification of their bank. That is, how does the branch banking experience reinforce the customer’s expectation of what the bank should be?The branch can’t provide this experience until we know what customers want – and this may vary among branches.   For example, some customers might want their branch to appear “safe and secure”, while at another branch people expect to be treated “casually and informally”; somewhere else the branch must be the “friendly meeting place”, a social experience; while the cross-town customers want to have a sense of “efficiency and frugality”. The right customer experience has a business purpose – it contributes to profitability through incremental sales.   Building relationships will require an advisory and service orientated profile within our physically redesigned branches. Better design plus skilled employees will certainly be required to personify the branch to enhance the emphasis on the emotive triggers – moving beyond a transaction towards building relationships. Winning branches will find ways to work this personification and enhanced value addition into their operations. As neuroscientists tell us, we are emotional beings before we are rational ones. If we were totally rational, no one would smoke and everyone would eat organic food. Customers may find it hard to articulate their needs, but they come to their branch wanting to be comforted by the feeling that people at their bank is “one of us”, “…I feel good about my bank, they understand me”. The emotional response to the customer experience starts in the parking lot.   Not finding a space creates anger; if the path to the door is clean, most people feel a sense of comfort; when the door opens easily they feel confident that things are working well at their bank.   What happens when they enter? Is there a safe in-sight to promote the feeling of security? Is there music to make them feel welcomed? What’s on the television while waiting for service – financial information that helps them feel up-to-date? How is the transaction completed? How are the staff dressed? Do they convey a sense of professionalism? Is the deposit slip on re-cycled paper to make them feel environmentally responsible or is it embossed with the bank logo to make them feel elegant? The beauty of branches is that they can be configured to meet local needs – one size does not fit all.   It’s all about “staging” at the branch level.   By conducting research into the customer experience we can pinpoint how to activate the emotions and keep customers coming back. The bank branch is the strongest touchpoint for the customer assuring them that their bank “gets it”.   The branch engages most deeply with the emotions of the customer.   It is the branch that delivers the strongest relationship and activates emotions.   A bank’s Internet site can be easy to navigate, and an ATM transaction can be efficient – but efficiency only touches one dimension of a complex web of requirements from a banking partner.   Slick automation doesn’t tell us a lot about professionalism, security, and concern for me when things go wrong.   I want to go to my branch, and I do!   Bank Branches and the Credit Crunch Of course, headlines across the world in 2008 have been dominated by the impact of the credit crunch and the subsequent banking crises, with bank failures, bankruptcies, government bail-outs and eventual part nationalisation in some countries. Billions of dollars have been pumped into economies world-wide to prevent systemic banking failure, and try and encourage greater liquidity into the money markets. Yet how much this affects the individual bank customer is difficult to judge at this stage. Clearly when there is fear of an individual bank collapse, scenes of depositors trying to withdraw their money become prominent in the media, such as appeared in the UK with the collapse of Northern Rock in 2007. However, whether this fear has permeated customers at a widespread general level is too difficult to judge at this stage. There is little evidence to date that customers are concerned with who owns their bank – whether it is one institution or another or the government – as long as their savings and deposits are not at risk. And it may be in such difficult times that the branch will come to play an increasingly important role in terms of providing a visible sign of a bank’s permanence and viability. MASMI’s research has shown that, in Emerging Markets, where the banking sector is still relatively immature and local bank failures are not uncommon, for many customers a visit to the branch remains important – not only because it helps them to better understand details about a bank’s products and services, but as a means of providing reassurance as to a bank’s stability. In a world where even banks in developed markets are perceived as weak, the branch may acquire greater symbolic status.   It can give customers what they really need: a sense of trust, and a degree of confidence that their bank is here to stay and has a relationship with them.   It’s not a glass tower full of over compensated executives.   It’s a part of their life, staffed by people just like them – good people who are trying to build a good life, and who strive to serve them with honesty and care. Ultimately, the litmus test is whether customers feel that through its branches the bank is an indispensable part of their own lives. ConclusionThe branch is critical in the life of a bank. Significant numbers of customers still visit the branch weekly. But branches need to be more than simply efficient at the transactional level.   They need to exist at the personal level where relationships are developed; and it is these relationships that will turn the branch from a primarily transaction center into a home for loyal customers.   This is good news for banks and the crisis they are currently facing.   Trusted banks and their branches are an important source of client engagement and revenue generation. The future is therefore bright for bank branches. They will be a revived source of business for banks. Customer loyalty, through staged customer experiences, will increasingly turn banking towards cross-selling and value-added advisory services.   By connecting rational and emotional elements, branches will reinstall trust in financial institutions and regenerate economic growth. Customers have shown that they want to work with their bank branches; now banks have to find ways to make this a worthwhile and profitable experience for both parties. Sources:”Bank branch transformation: The new multi-channel reality”, CEO Eontec Limited and Mark Greene, General Manager, Global Banking Industry, IBM Corporation, The Bankwatch, March 23rd, 2005″Bring Back the Branch”, Deloitte &Touche, September 2002 “Banks Race to add Branches”, USA Today, 19th June, 2003″Inside Apple Stores, a Certain Aura Enchants the Faithful”, New York Times, 27th December, 2007″How to Develop Stronger Retail Partnership to Accelerate Small Business Sales”, Martha Crawford, NBW Consulting Group, American Banker 8th Annual Small Business Banking Conference, October 2003″Customers still like to use bank branches”, Dennis Jacobe, Northwestern Financial Review, August 1 – August 14, 2003″The Branch Bank is Dead, Long Live the Branch Bank”, David Webber, The Banker, November 2000″Long Live the Bank Branch”, Greg McBride, Bankrate. com, May 17, 2004″Retail Banks Must Redefine Role of Teller to Meet Customer Demand and Achieve Overall Cost Savings”, Tom Brogan, TowerGroup Research, July 2008Damasio, Antonio.   Descartes’ Error.   Putman Publishing, 1994. Lehrer, Jonah.   Proust Was A Neuroscientist.   New York: Houghton Mifflin Company, 2007. Rapaille, Coltaire.   The Culture Code.   New York: Broadway Books, 2007. “Has the Bank-Branch Frenzy Peaked?”, Sewell Chan, New York Times, September 10, 2007. About the AuthorsDr. Nicos Rossides: CEO MASMI Research Group Dr Rossides is Group CEO of MASMI, a leading independent research agency operating in Central Eastern Europe and the Middle East.   Prior to joining MASMI he was CEO for Synovate’s CEEME region, the global head of solutions as well as CEO for its Loyalty Practice. Nicos has more than 20 years of market research and consulting experience, much of which involved developing a research infrastructure in Central and Eastern Europe. Prior to becoming a market researcher, Nicos was Senior Research Fellow at Kyoto University, where he received a Doctor of Engineering degree.   A Fulbright and Mombusho scholar, he also received senior management training at MIT’s Sloan School. Nicos has published a large number of articles in professional journals, contributed papers to numerous conferences and lectured at several universities and symposia. Bud Taylor: Director Consulting MASMI Research Group Mr. Taylor is a senior associate with MASMI where he advises clients on how to put their research data to work.   Prior to MASMI he was an SVP and Global Director of Consulting for Synovate Loyalty.   Before joining Synovate Bud was a Partner with Deloitte where he led its change practice in the US southwest. Bud is a Canadian and naturalized US citizen.   For over 30 years he has consulted to marquee clients in all major business sectors and in all parts of the world.   Bud’s clients include: Microsoft Europe, the National Commercial Bank (Capital) of Saudi Arabia, the Whirlpool Corporation, Sony Electronics, and the Overseas Chinese Banking Corporation. Bud contributes articles to professional journals and has published a business book: Customer Driven Change that demonstrates how to unite customers, managers, and employees in the process of organizational transformation.

Bud Taylor is an author, lecturer and consultant on organizational change. Bud has recently published “change client-focused” showing how to unite customers, employees and managers to transform organisations.Bud is an independent consultant and has alliances with MASM research Presidents Office International – Worldwide and Strategos Consulting.Bud worked previously as: SVP and global director of consulting services for Synovate; change partner at Deloitte, and Organization Effectiveness leader for Watson Wyatt.
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Banking Restructuring – Lessons for Georgia

Posted by admin on March 21, 2010 at 5:09 pm

Restructuring: the concept, purpose and competition. Termini restructuring is of Latin origin and means to change to improve the structure of an object or system, I. e. forms and their consistency (morphology). This means basically the same character guidelines for its functioning. They use major restructuring plan in the economic literature mostly in debt, including foreign payments and tax (trade) balance to the company sector of the economy and businesses separate banking system and banks fully separate (credit). They define “restructuring” in the legislation as follows: the restructuring of the credit agency is a complex of activities directed towards the eradication of financial fluctuations of the organization and retrieval of its processing capabilities or to the realization of the liquidity of the organization. This definition does not need opinion about the opportunity to discuss, like, first, here, they mean that the credit agencies and not separate the banking system itself, and, secondly, it a very technical and mixtures of gasoline and support the restructuring process with the activities, which in May (or must) be made in this process. Thus, it is not common, largely excluded from definition of restructuring, even if the majority agrees with the idea that we must consider restructuring to be readjusted (cure) of the banking system and sound out of the crisis phase, so its return in terms of capacity of cheap labor. They sometimes use Termini “stabilization of the banking system, but we consider it to be comfortable. The fact is that the stability of achievement may be provided by various means, including the liquidation of the entire system. There is another point of view, they consider the restructuring process will be to overcome the difficulties that emerged from the crisis. This view is not quite fluent. Thinking about the essence of the case and not its definition, the hen must be considered in the reconstruction of the banking system as a process – all decisions and actions. Its basic elements are: the eradication and minimizing the negative influence of bad macro-economic, political and other factors common to the situation and prospects of the banking system, improvement of systemic organization (structure, forms, types) of all credit institutions, creating conditions for effective competition and civilians among them, improving the legislative basis for cooperation and mutual benefit organization mechanisms between economic organizations and credit their customers, increasing the quality of management of the banking system as a whole and its individual components; heal financial banks and credit agencies separate from others; effective (with a minimum of social experiences) the liquidation of credit institutions vital. Foreseeing these elements, we can state the following definition: the restructuring of the banking system in the management process of readjusting overall (improved), supported by the evolution of the industry cash, taxation, fiscal policy and information, also in policy banks themselves, which is oriented towards the formation of the banking system appropriate to effective, confident and dynamic modern developed applications. According to this definition, the effective restructuring, stable and healthy banking system is not necessary (although it is possible to improve or reform it). Thus, restructuring is a cure (polymerization something that is not healthy), I. e. restructuring may be understood and must be understood as the process with the aid of which the banking system of countries of transit concrete for the new level of development. It is also clear that the restructuring is the cure of these systems, which are in crisis and can not cope without help. Finally, the point of restructuring (view private financial need of healing), we must discuss all banks. In this case, the restructuring as a process of adjustment seems to have its own instruments, which is not only limited instruments for managing bank ordinal procedure? According to the above, we can do the main objective of restructuring the banking system – its value and its movement into the relatively new trajectory, during which he won already earlier loss of development potential progressive and is adequate to the real sector of the economy again. In connection with this, we must pay attention to requests principle to the context of the process to be discussed: the activities planned under the restructuring will pay off in cases where, if one includes not only reasons the banking crisis, but also define the fundamental flaws of economic reports, which make viable banking system to the modern stage, the restructuring of the banking system, which in fact should lead to its resuscitation in the previous state, does not solve problems, or the whole system, or the economy, it is necessary to address not only the tactical activities before starting the process of restructuring, but also put things strategic to receive such structure of the bank, which will be sufficient for the purposes and functions standing towards banks in the new stage, a time processing activities of the banking reform, they must clearly define a circle of these problems, which must be solved during the reform process with assistance from the banking system extended and they should fix the price of activities, requests for restructuring effective methods of combined approaches to problems. Practices in the world of principles and methods of treatment approaches for resolution of banking crises, approval of which have proved effective enough. It is unprofessional and not rational to use certain principles and rejecting others, a process of crisis resolution may not be quick, easy or cheap. Th8is common goal, mentioned above, in turn, may be concreted in the list of problems, work on which should really make the concept of restructuring according to the conditions of modern Georgia: the elimination of conditions cause banking crises, the resolution of problems with regard to the banking sector and real sector, tightening financial problems of these banks, which maintained the viability and prospects of development, also support these state banks, which have the capacity for effective use of aid; giving full satisfaction to trust applications based on current banking (payments and short call credit) issues industrial foundation of a new more complete structure of banks and credit agencies (in the manner, measurements of the property, regional distribution and so on), the creation of more comprehensive rules and instruments for regulating new rules of banking activity and the activity, creation of conditions . Mechanisms and incentives to banks to turn the business side, for their participation in the process of producing additional rigidity also overcome the banks in the process of solving investment problems at the gullibility recover between banks; Recovery trustfulness in connection with the banking system, appearing between the stimuli of the population to put their savings accounts, create stimuli for responsibilities and increasing the effectiveness of managers; closing civilly not viable banks and achievement mechanisms for their liquidation. There is an idea that the main objective of banking system restructuring is the recapitalization of banks (recovering lost a country and its growth below), but this is not quite correct: since the problem more difficult today is a spectrum of profitability and confidence in investment capital is very tight. Some banks offer such an understanding and restructuring activities such pragmatic radical reform of the banking system, the essence of what has finally been brought to the consolidation of banks near bankruptcy by the principles of specialization (specialized banks working in the nationwide banks oriented towards exports or those kept in groups of large companies, as regional banks). they meant that the new system “training” group obey strict enforcement of appropriate structures, governmental or business groups in exchange for it, he has the right to work on budget . Suggestions of separate bankers are not related to recovery problems banking system as a whole. We can form the fundamental problems of the banking system, restructuring as follows: in transit to the foundation of a healthy banking market by adjusting various problems banks, providing the structural reform of the banking system, increase total capital of banks and Fill banking system long call resources, creating conditions for growth of quality commercial banking market, including those in the regions. Main objectives of the restructuring program should be: the creation of this layer technology market commercial bank that provides the marketing policy and makes a profit from core lending operations. It is interesting that in the terminal from 2-3 years program such capital into the banking system may reach up to 30-40% and the share of credit in the loan portfolio of the banking system – 30%. Share of profit in the income of credit throughout the banking system should not be lower than 6%. Half of these healthy banks must still operate in the regions. The concept of these initial steps, which must make the Foundation to implement the program effectively restructuring the banking system must be formed in this way: the transformation of a design development of the banking system and account, as Manual 2-3 years earlier wrote a program to work past liabilities and its implementation; we mean that a government body working on special purchases of restructuring on their banks’ bad money; . completion of the recapitalization of banks. we believe that the same or other government agencies between the capitals of banks for a short time, increases the capital and credit potential of banks and then sold his share in the capitals of banks, adoption of the law guaranteeing deposits about the population in commercial banks on time, create conditions for equal competition and development of all banks. We must refuse to other banks “with social significance”, “training system” and somehow “bound” with someone; formulation of the role of government and state banks in the banking system clear, Realizing the obvious support of regional market of commercial banks, the creation of effective mechanisms for infrastructure development banks and their operations, evolving a system of taxation of commercial banks, processing and implementation activities refinancing commercial banks by the Central Bank, the creation and implementation of all legislative activities and the organization developing the mortgage, the process of determining transit by commercial banks with international standards of accounting restructuring: the principles and conditions. We cite below to be the mandatory principles (basic rules) the system of bank restructuring: a principle of joint and several liability. The essence of it is that in the mentioned process involved there (with resources) and to coordinate the banks themselves (in the first place – the owners), creditors and government. It is impossible to restructure the banking system without state support. However, it is clear that the state will not be able to support all banks, with extremely limited resources. Consequently, banks must first try to resolve their problems independently and managers and creditors of banks cured must stand on the position advantage. The principle of limiting losses and expenses. He said that while achieving the restructuring that we must consider these activities, which provide opportunities to overcome the crisis with the least expenditure budget (financial expenses of the Company) and with little loss of the side of the banking system and bank customers to be more technical. liquidation of banks is much more problematic losable, but socially more difficult. It is measured in particular method of approach to the problems of depositors of banks to liquidate. Fast liquidation of no solvent banks may worsen the crisis (an example of Indonesia 1997-1998). According to the estimation of many experts, the best way out is the confluence of the bank’s problem with the sound, although this recommendation is quite doubtful. A principle of minimization of applications for liquidation to give priority to reorganization activities and support and not undermine the financial restructuring process and drying. A principle of fair distribution of costs relating involves restructuring, said that the share of expenditure on the banks of tightening should be compensated by those who perceive the risks these banks are responsible for their losses and make profits after restructuring (participants ie banks, its highest administrative). Economical duty managers not solvents and owners of banks may be expressed, for example, sufficient reduction of their own capital of banks, their participation in the restructuring process in the way of additional entry in the banking capitals. Part of the loss May be covered at the expense of depositors. A principle of the method of strategic approach to define the means of strategic problem, what kind of banking system is sought by the company after the restructuring (in the state if it complies with new objectives and functions of the bank new stage). Only after that, they must choose the benefits and agreed activities, which may be recommended for adjustment of separate banks and its entire system. One of the principles of the complex method of approach means that the system defined by the program must be completely filled. You can not bring the whole concept of reconstruction process in its separate parts including (for example, not everything has to be limited only to solve financial problems displayed in a specific period of time). We can mention such provision principles of restructuring, transparency (the need) to distribute expenses with it, strengthen the management of these banks, which are supported by the state, encouraging the adaptation of independent banks whose situation has changed and others. Following the restructuring conditions are also important: Successful reconstruction of the banking system is in close contact with how clear case and knowing that formulate long problems described, industry, structural policy and financial . For example, credit companies, especially larger ones, is possible only in case if it is effective if it relies on state policy clear. This is an important condition without which the bank restructuring may not be successive. successivity for restructuring the banking system, it is most needed to recover and develop such an approach, which will follow the main economic objectives. This design may be geared towards the accomplishment of objects of an operative (recovery mechanism, the payment to resolve other problems). This is not true to try to restructure the banking system, the shape that reform and restructuring of the neighborhood, where the banking functions. This application has initially focused on the real sector of the economy and its companies are active. banking system is some sort of “frame” and its successful restructuring is able to know what the basis is similar to what kind of economy should support him. Concrete demands and opportunities of the real economy are the main criteria that define what the banking system should be. Solving policy problems of real sector economic benefit state demands. In any case, the real sector and banking system is also directing concrete, which themselves appear to be additional stimuli for development. restructuring the banking system must be exceeded by the recovery of money and credit relations. By tightening relations money should play a leading role (avoiding private barter money and other payments to “free” in the economy). This should provide activities that stimulate investment in the real sector of the economy, because it is impossible to overcome the economic crisis in other cases. Restructuring the banking system is impossible without personal revolution. Specialists in short called financial speculation must master one or the other directions or give the modern way to those professionals who can work with the real sector, have knowledge and skills in the part of estimating and managing investment and industrial risks. banking system demands major restructuring correction legislative and normative base. According to the above, we can separate issues leading to the system of bank restructuring, on which there is still no satisfactory answers. What was the main reason of the situation, where banks appear? It is thought that we must make a choice situation in the real economy and banking particulars. We consider it not be correct to oppose two other reasons for this way in our concrete conditions. What needs to turn in the basic concept of the restructuring process (consisting important part)? The central bankers give different answers to this central question. There are such variations do not conform to the other: 1. tightening financial problems of these banks, which retain the viability and prospects of development 2. increase the level of capitalization of banks, 3. tightening of money relations, 4. not recover as many banks, but relations cash credit 5. creating functionally new banking system. What should be the structure of the banking system be the formation of what was targeted? This is a major problem. It is clearly necessary in connection with it. Banks should have a set “if there is no other option to be received. What a concept of recovery and development of the banking system be? In private, the following issues remain to be questionable (more in practice then in theory): Should it consider the fundamental direction of curing their bank reorganization and readjustment, for financial support, and structural reform Foreign Affairs? experience of the system of bank restructuring. Reconstruction Bank is not a unique problem. banking crisis was observed in almost 70 countries for 20 years. A process of recovering the balance was still very difficult everywhere and the government participates in them (although the scale of this participation have been different in different places and times. Sometimes, the reasons for the crisis coincided with each other, sometimes they are specific. But the forms of their resolution coincided in many cases: the stabilization of accounting, filling equity banks, purchase of assets (including debt inherited) and other . Generally, the basic financial burden rested on the State directly, or in the financing agencies specially created by it. USA has been a pioneer in the field of restructuring the banking sector, where a system Deposit Guarantee Institute and a special management of these deposits was founded under the influence of the crisis in 1929-1933. This institution has been an insurance company deposits (FCID). The next stage of banking sector restructuring is related to the series of banking crises took place in absolutely different countries during last 20 years. 1980-1991 1300 banks and 1400, loans to savings associations exist in the case United States. According to various estimates, the restructuring of the banking system at low cost 300-500 billion (5% of WIP). In 1995, the bank crisis has occurred in Japan in 1994-1995 – in France in 1989 — 1990 – Australia, 1987-1989 – Norway, 1991 – in Sweden, 1991-1993 – Finland, 1980-1982, 1900 -1991 and 1995 – in Argentina, in 1990, 1994-1995 – Brazil in 1981-1982, 1990-1991 and 1995 – in Argentina and Mexico, 1982-1984 – In Chile, 1994-1995 – India, 1994 – Indonesia, 1985-1988 – Malaysia, 1981 1987 – Philippines, 1991-1995 – Hungary in the 1990s – in Poland, Bulgaria, Lithuania, Latvia, Estonia and others. In some countries, a systemic crisis used to be repeated periodically. Some countries have managed to avoid systemic crises core with the help of the insurance system that, first, to the detriment of efficient management and banking regulation. Price of restructuring the banking system is very different: 5 % of WIP in the United States, 10 – in Hungary and Brazil, more then 40 – in Chile and 55% – in Argentina. The central banks can support problem banks in the crisis, especially in case of spoiling their current liquidity. In Venezuela, not eight banks solvent used in special lines of cash to offset the resources of money. Well, they were unable to cover the borrowed sources in the future. In other If credit is an important central banks. They are supported during the banking crisis and give them the resources and the modalities of the restructuring of credit institutions. Support Long known as provided by the central bank of Poland is a good example of it, when it bought shares at low cost and long-term bonds called banks. Granting long termed credits by the Central Bank may depend on creating plans to improve the complex situation by banks (list of reported activities and outcomes). Reduce the level of reserves (or increasing the percentage of payments on them) is another way of supporting banks, for example, part of the obligatory reserve deposits reaffirms position have been released to finance the purchase of certificates of deposits called institutions, who had worked in the program of bank restructuring. They use special tax benefits rarely in the process of bank restructuring. Despite this, the Brazil has used tax stimuli for encouraging confluence “swallowed” bank could then exclude value of credits not active, the sallow “have received credits equal to the difference between purchase price and the equilibrium. Some countries use tax incentives for shares and bonds issued during the implementation of the restructuring program. They are somehow the rules of regulation and management in terms of simple restructuring of the banking system. They make up the middle by the creation of such a known system of regulation and management (in the crisis period), which provides risk banking activities more adequately. To save the banks are in position takes any action under the State a support may weaken the sense of responsibility of banks. In these circumstances, the following is very important not to give rise to the encouragement of the weakening of irresponsible behavior of banks in the future. It is considered, it is necessary to ‘ grant money to make big profits and the participating banks must be accountable for their obligations. They asked the banks to dispose of a capital part of the conditions for manufacturing support in South Korea, the State itself even forced loans of credit organizations in Mexico than in cases where participants used to make additional income, while the bankruptcy of credit organizations in Brazil and India, their participants were required to enter additional sum equal to the size of their first entry in the nominal funds. Herewith, a participating banks are not always required with responsibilities, for example, in the case of loss received these loans are granted by banks by indications from the state, it is necessary to array the size of the liability, as participants may not be able to solve problems in the organization of credit because of transparency and do not have calculations of the organization and other reasons. They have set up specialized agencies in the greater part of the country during the restructuring of the banking system, which were forced with the problems of managing this process. A government and central banks of many countries to solve problems with the banking crisis and restructuring own banking system in different ways. Practice has shown up, there is no ideal form of restructuring or the strategy of universal standardization situation in the banking sector. Very often a particular action depends on the occasion of concrete. However, we may separate Total sign of successful programs that have been made abroad: the fastest setting Balance problems, his knowledge on the state level and government’s willingness to grant substantial financial resources to solve problems, cross transparencies, activities appropriate to the essence of the problem, moving a ?? bada?? assets of problem banks off; treatment program complex, transparent operation, the correct development and successive completion of banking procedures. Chile. A complex of activities. restructuring scale of the banking system in Chile has begun since 1984, when a country’s central bank began to extend credit to support the stabilization of the liquidity of banks and purchasing their trust funds or not does not change active liquidity of assets. Removal of bank debt held in the way of creditors to shareholders. State became a guarantor for the foreign debts of private banks. Size debts passed to the Central Bank of Chile at the end of the year 1985 has overcome all of the bank capital problem 3 times and consisted of 6 billion dollars (25% of WIP). About 60% of credits were changed expiated its obligations by the central bank. They participate directly control State the number system by banks. recapitalize banks passed under state control used to achieve in the way of the issuance of shares placed with investors, small and additional resources. A company of State support

Lamara Qoqiauri& #13; Date and birthplace: October 6, 1948 & #13; Work place: Tbilissi Iv. Javakhishvili State University& #13; T

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A Study the Strategies Issue in Indian Banking Sector

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1. 0 INDIAN BANKING SYSTEMA banking company in India has been defined in the banking companiesact,1949. as one “which transacts the business of banking which means the accepting, for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdraw able by cheque, draft, order or otherwise. ” Most of the activities a Bank performs are derived from the above definition. In addition, Banks are allowed to perform certain activities which are ancillary to this business of accepting deposits and lending. A bank’s relationship with the public, therefore, revolves around accepting deposits and lending money. Another activity which is assuming increasing importance is transfer of money – both domestic and foreign – from one place to another. This activity is generally known as “remittance business” in banking parlance. The so called forex (foreign exchange) business is largely a part of remittance albeit it involves buying and selling of foreign currencies. Functioning of a Bank is among the more complicated of corporate operations. Since Banking involves dealing directly with money, governments in most countries regulate this sector rather stringently. In India, the regulation traditionally has been very strict and in the opinion of certain quarters, responsible for the present condition of banks, where NPAs are of a very high order. The process of financial reforms, which started in 1991, has cleared the cobwebs somewhat but a lot remains to be done. The multiplicity of policy and regulations that a Bank has to work with makes its operations even more complicated, sometimes bordering on illogical. This section, which is also intended for banking professional, attempts to give an overview of the functions in as simple manner as possible. Banking Regulation Act of India, 1949 defines Banking as “accepting, for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdraw able by cheques, draft, and order or otherwise. “KINDS OF BANKSFinancial requirements in a modern economy are of a diverse nature, distinctive variety and large magnitude. Hence, different types of banks have been instituted to cater to the varying needs of the community.  Banks in the organized sector can be classified in to the following1.       COMMERCIAL BANKS:-Commercial banks are joint stock companies dealing in money and credit. In India, however there is a mixed banking system, prior to July 1969, all the commercial   banks-73 scheduled and 26 non-scheduled banks, except the state bank of India and its subsidiaries-were under the control of private sector. On July 19, 1969, however, 14mejor commercial banks with deposits of over 50 Corers were nationalized. In April 1980, another six commercial banks of high standing were taken over by the government. 2.       CO-OPERATIVE BANKS:-Co-operative banks are a group of financial institutions organized under the provisions of the Co-operative societies Act of the states. The main objective of co-operative banks is to provide cheap credits to their members. They are based on the principle of self-reliance and mutual co-operation. Co-operative banking system in India has the shape of a pyramid a three tier structure, constituted by:                                                                                            3.       SPECIALIZED BANKS:-There are specialized forms of banks catering to some special needs with this unique nature of activities. Foreign exchange banks, Industrial banks, Development banks, Land development banks, Exim bank     are important. 4. CENTRAL BANK:-A central bank is the apex financial institution in the banking and financial systemof a country. It is regarded as the highest monetary authority in the country. It acts as the leader of the money market. It supervises, control and regulates the activities of the commercial banks. It is a service oriented financial institution.  India’s central bank is the reserve bank of India established in 1935. and it was nationalized in 1949. It is free from parliamentary control. ROLE OF BANKS IN A DEVELOPING ECONOMYBanks play a very important and dynamic role in the economic life of every modern state. A study of the economic history of western country shows that without the evolution of commercial banks in the 18th and 19th centuries, the industrial revolution would not have taken place in Europe. The economic importance of commercial banks to the developing countries may be viewed thus:1.      PROMOTING CAPITAL FORMATION:-A developing economy needs a high rate of capital formation to accelerate the tempo of economic development, but the rate of capital formation depends upon the rate of saving. Unfortunately, in underdeveloped countries, saving is very low. Banks afford facilities for saving and, thus encourage the habits of thrift and industry in the community. They mobilize the ideal and dormant capital of the country and make it available for productive purposes. 2.      ENCOURAGING INNOVATION:-Innovation is another factor responsible for economic development. The entrepreneur in innovation is largely dependent on the manner in which bank credit is allocated and utilized in the process of economic growth. Bank credit enables entrepreneurs to innovate and invest, and thus uplift economic activity and progress. 3.      MONETSATION:-Banks are the manufactures of money and they allow many to play its role freely in the economy. Banks monetize debts and also assist the backward subsistence sector of the rural economy by extending their branches in to the rural areas. They must be replaced by the modern commercial bank’s branches. 4.      INFLUENCE ECONOMIC ACTIVITYBanks are in a position to influence economic activity in a country by their influence on the rate interest. They can influence the rate of interest in the money market through its supply of funds. Banks may follow a cheap money policy with low interest rates which will tend to stimulate economic activity. 5.       FACILITATOR OF MONETARY POLICYThus monetary policy of a country should be conductive to economic development. But a well-developed banking system is on essential pre-condition to the effective implementation of monetary policy. Under-developed countries cannot afford to ignore this fact.  PRINCIPLES OF BANK LENDING POLICIESThe main business of banking company is to grant loans and advances to tradersas well as commercial and industrial institutes. The most important use of banks money is lending. Yet, there are risks in lending. So the banks follow certain principles to minimize the risk:1.       SAFETYNormally the banker uses the money of depositors in granting loans and advances. So first of all initially the banker while granting loans should think first of the safety of depositor’s money. The purpose behind the safety is to see the financial position of the borrower whether he can pay the debt as well as interest easily. 2.       LIQUIDITYIt is a legal duty of a banker to pay on demand the total deposited money to the depositor. So the banker has to keep certain percent cash of the total deposits on hand. Moreover the bank grants loan. It is also for the addition of short term or productive capital. Such type of lending is recovered on demand. 3.      PROFITABILITYCommercial banking is profit earning institutes. Nationalized banks are also not an exception. They should have planning of deposits in a profitability way pay more interest to the depositors and more salary to the employees. Moreover the banker can also incur business cost and can give more benefits to customer. 4.       PURPOSE OF LOANBanks never lend or advance for any type of purpose. The banks grant loans and advances for the safety of its wealth, and certainty of recovery of loan and the bank lends only for productive purposes. For example, the bank gives such loan for the requirement for unproductive purposes. 5.      PRINCIPLE OF DIVERSIFICATION OF RISKSWhile lending loans or advances the banks normally keep such securities and assets as a supports so that lending may be safe and secured. Suppose, any particular state is hit by disasters but the bank shall get benefits from the lending to another states units. Thus, he effect on the entire business of banking is reduced.  OBJECTIVES OF THE STUDYThe following are the main objective of the studies. 1. To study the problem in financial crisis and money related query. 2. To evaluate banking is one of the most regulated businesses in the India. 3. To Analysis the role developing economy for the nation. 4. To study dynamic role in delivery and purchase of consumer durables.  Scope of the StudyAll persons need money for personal and commercial purposes. Banks are the oldest lending institutions in Indian scenario. They are providing all facilities to all citizens for their own purposes by their terms. To survive in this modern market every bank implements so many new innovative ideas, strategies, and advanced technologies. For that they give each and every minute detail about their institution and projects to Public. They are providing ample facilities to satisfy their customers i. e. Net Banking, Mobile Banking, Door to Door facility, Instant facility, Investment facility, Demat facility, Credit Card facility, Loans and Advances, Account facility etc. And such banks get success to create their own image in public and corporate world. These banks always accept innovative notions in Indian banking scenario like Credit Cards, ATM machines, Risk Management etc. So, as a student business economics I take keen interest in Indian economy and for that banks are the main source of development. So this must be the first choice for me to select this topic. At this stage every person must know about new innovation, technology of procedure new schemes and new ventures.  METHODOLGYTheoretical study conducted on the basis of secondary data, collected from books, journal and annual reports. 2. BANK PROFILE:Indian BankName of the Branch               : Karaikal. [0090]Date of Opening                     : 1971District/Port Open                : Karaikal/Port Town. Category/Size                         : Large. Population                              : Urban. Computerisation          : CBS. Name of the Branch Head      : R. Muralitharan,(Senior Branch                                                                                                                                                             Manager)Staff Strength                         Officers                : 06                                                Award Staff : 06                                                Sub Staff               : 03Productivity                           : Rs. 281. 39 Lacs. Branch Classification            : Profit Centre. Location of the Branch      : No. 96-98 Bharathiyar Road,                                                  Karaikal-609607Competition in the area        : Almost All Banks are functioning. Potential Available                : Situated in a Commercial Area with a number of shops around Scope for trade finance. Branch has to tap more trade finance. Computerised                         : ATM/CBS. Commercial Activity             : Being a union territory, large commercial Industrial activities are on. TARGETS vis-à-vis ACHIEVEMENTSRupees in LacsParticulars31-03-200731-03-200830-06-2008targetstargetactualtargetactualtargetactual30-09-0831-03-09S. B29002914334327783400306235574200C. D1610162118149242365170019152200T. D48005281565458906064609958416400TOTAL9310981610811959211329103611132912900ADVANCES43893674388337335487576854876430PROFIT474520175120156147289411NPA LEVEL320368379601457604478581SLIPPAGE118251234268276337CASH REC. 406238. 3313. 014018. 98121200UPGRADE206013. 333. 5O16. 655. 522647IOB JEEVAN224432385543600HEALTH+4780110136200**** Number of Accounts.                                                 * Cumulative Figures. Source: Computed Balance sheet of Indian BankInspection Report Rating:Inspection Report datedBusiness GrowthProfitabilityCredit Mgt. NPA Mgt. House keepingBranch ImageOverall Rating25. 08. 2003BBCCBBB12. 02. 2005AACBBBB29. 08. 2006BABABAASource: computed balance sheet. STRATEGIC ISSUES IN BANKING SERVICESStrategic Planning is the process of analyzing the organizational external and internal environments; developing the appropriate mission, vision, and overall goals; identifying the general strategies to be pursued; and allocated resources. • Mission is an organization’s current purpose or reason for existing. • Vision is an organization’s fundamental aspirations and purpose that usually appeals to its member’s hearts and minds. • Goals are what an organization is committed to achieving. • Strategies are the major courses of action that an organization takes to achieves goals. • Resource Allocation is the earmarking of money, through budgets, for various purposes. • Downsizing Strategy signals an organization’s intent to rely on fewer resources primarily human-to accomplish its goals. Tactical Planning is the process of making detailed decisions about what to do, which will do it, and how to do it-with a normal time and horizon of one year or less. The process generally includes:• Choosing specific goals and the means of implementing the organization’s strategic plan,• Deciding on courses of action for improving current operations, and• Developing budgets for each department, division and project. TOTAL QUALITY MANAGEMENTWhile Total Quality Management has proven to be an effective process for improving organizational functioning, its value can only be assured through a comprehensive and well thought out implementation process. TQM is, in fact, a large scale systems change, and guiding principles and considerations regarding this scale of change will be presented. Without attention to contextual factors, well intended changes may not be adequately designed. As another aspect of context, the expectations and perceptions of employees will be assessed, so that the implementation plan can address them. Specifically, sources of resistance to change and ways of dealing with them will be discussed. This is important to allow a change agent to anticipate resistances and design for them, so that the process does not bog down or stall. Next, a model of implementation will be presented, including a discussion of key principles. Visionary leadership will be offered as an overriding perspective for someone instituting TQM. In recent years the literature on change management and leadership has grown steadily, and applications based on research findings will be more likely to succeed. Use of tested principles will also enable the change agent to avoid reinventing the proverbial wheel. Implementation principles will be followed by a review of steps in managing the transition to the new system and ways of helping institutionalize the process as part of the organization’s culture. Finally, some miscellaneous do’s and don’ts will be offered. Planned change processes often work, if conceptualized and implemented properly; but, unfortunately, every organization is different, and the processes are often adopted “off the shelf” “the ‘appliance model of organizational change’: buy a complete program, like a ‘quality circle package,’ from a dealer, plug it in, and hope that it runs by itself” (Kanter, 1983, 249). Alternatively, especially in the underfunded public and not for profit sectors, partial applications are tried, and in spite of management and employee commitment do not bear fruit. This chapter will focus on ways of preventing some of these disappointments. In summary, the purpose here is to review principles of effective planned change implementation and suggest specific TQM applications. Several assumptions are proposed:1. TQM is a viable and effective planned change method, when properly installed2. Not all organizations are appropriate or ready for TQM3. Preconditions (appropriateness, readiness) for successful TQM can sometimes be created4. Leadership commitment to a large scale, long term, and cultural change is necessary. While problems in adapting TQM in government and social service organizations have been identified, TQM can be useful in such organizations if properly modified. For survival, banks have to make efforts to improve their quality and competitiveness by planning and taking innovative in fall areas:·     Increase emphasis on customer focused activities·     Intro a “total quality” program·     Developing differential value added services·     Educating employees through involvement programs·     Increase quality through management and system·     Increase effectiveness of product development·     Developing product with lower uses costsTQM principles·     Customer satisfaction·     Plan-do-check-act (PDCA) cycle·     Management by ‘fact’ – 5Ws (what, why, who, when, and where) + 1H(how) approach·     Respect for peopleTQM elements·   Total employee involvement (TEI)·   Total waste elimination (TWE)·   Total quality control (TQC)TQM focus areas·   Customer satisfaction·   Product quality·   Plant reliability·   Waste eliminationBenefits achieved through TQM·     Increased focus on the customer·     Mindset of ‘continuous improvement’·     Better product quality·     Better systems and procedures·     Better cross-functional teamwork·     Increased plant reliability·     Waste elimination in offices and factories. KNOWLEDGE MANAGEMENT                According to Peter Drucker and Daniel Bell, the management Gurus knowledge is the only meaningful economic resource. Knowledge management can be defined as a systematic and integrative process of coordinating organization-wide activities of acquiring, creating, storing, sharing, diffusing, developing and deploying knowledge by individual and groups in the pursuit of major organizational goals. It also involves the creation of an interacting learning environment where organization members transfer and share what they know; and apply knowledge to solve problems, innovate and create new knowledge.                 Knowledge management is as much about people and culture as it is about technology. Knowledge management thrives only when the human communication network operates freely across the shortest path between the knowledge providers and knowledge seekers. There must be a culture that promotes and rewards the pooling together of knowledge resources. Thus organizations must build a culture that motivates people to create, share and use knowledge.                 After the preoccupation with system and procedures to collect data ad translate it into information, its time for firms to focus on the next plane- knowledge. Knowledge management is not a buzzword. Every knowledge management solution, if currently implemented, has definite measurable business benefits.           Future business success increasingly depends on the retention and the creative use of the knowledge ideas and experiences of an organization and its employees. And in knowledge economy corporations need for workers will be more than the workers need for employer. INNOVATION IN BANK          Innovation drives organizations to grow, prosper and transform in sync with the changes in the environment, both internal and external. Banking is no exception to this. In fact, this sector has witnessed radical transformation of late, based on many innovations in products, processes, services, systems, business models, technology, governance and regulation. A liberalized and globalize financial infrastructure has provided an additional impetus to this gigantic effort.            The pervasive influence of information technology has revolutionaries banking. Transaction costs have crumbled and handling of astronomical number of transactions in no time has become a reality. Internationally, the number brick and mortar structure has been rapidly yielding ground to click and order electronic banking with a plethora of new products. Banking has become boundary less and virtual with a 24 * 7 model. Banks who strongly rely on the merits of relationship banking’ as a time tested way of targeting and serving clients, have readily embraced Customer Relationship Management (CRM), with sharp focus on customer centricity, facilitated by the availability of superior technology. CRM has, therefore, become the new mantra in customer service management, which is both relationship based and information intensive.           Risk management is no longer a mere regulatory issue. basel-2 has accorded a primacy of place to this fascinating exercise by repositioning it as the core of banking. We now see the evolution of many novel deferral products like credit derivatives, especially the Credit Risk Transfer (CRT) mechanism, as a consequence. CRT, characterized by significant product innovation, is a very useful credit risk management tool that enhances liquidity and market efficiency. Securitization is yet another example in this regard, whose strategic use has been rapidly rising globally. So is outsourcing. TECHNOLOGY IN BANKING          Nobel Laureate Robert Solow had once remarked that computers are seen everywhere excepting in productivity statistics. More recent developments have shown how far this state of affairs has changed. Innovation in technology and worldwide revolution in information and communication technology (ICT) have emerged as dynamic sources of productivity growth. The relationship between IT and banking is fundamentally symbiotic. In the banking sector, IT can reduce costs, increase volumes, and facilitate customized products; similarly, IT requires banking and financial servicesto facilitate its growth. As far as the banking system is concerned, the payment system is perhaps the most important mechanism through which such interactive dynamics gets manifested. Recognizing the importance of payments and settlement systems in the economy, we have embarked on technology based solutions for the improvement of the payment and settlement system infrastructure, coupled with the introduction of new payment products such as the computerized settlement of clearing transactions, use of Magnetic Ink Character Recognition (MICR) technology for cheque clearing which currently accounts for 65 per cent of the value of cheques processed in the country, the computerization of Government Accounts and Currency Chest transactions, operationalisation of Delivery versus Payment (DvP) for Government securities transactions. Two-way inter-city cheque collection and imaging have been operationalised at the four metros. The coverage of Electronic Clearing Service (Debit and Credit) has been significantly expanded to encourage non-paper based funds movement and develop the provision of a centralized facility for effecting payments. The scheme for Electronic Funds Transfer operated by the Reserve Bank has been significantly augmented and is now available across thirteen major cities. The scheme, which was originally intended for small value transactions, is processing high value (upto Rs. 2 crore) from October 1, 2001. The Centralized Funds Management System (CFMS), which would enable banks to obtain consolidated account-wise and centre-wise positions of their balances with all 17 offices of the Deposits Accounts Departments of the Reserve Bank, has begun to be implemented in a phased manner from November 2001.           A holistic approach has been adopted towards designing and development of a modern, robust, efficient, secure and integrated payment and settlement system taking into account certain aspects relating to potential risks, legal framework and the impact on the operational framework of monetary policy. The approach to the modernization of thepayment and settlement system in India has been three-pronged:                  (a) consolidation, (b) development, and (c) integration. The consolidation of the existing payment systems revolves around strengthening Computerized Cheque clearing, expanding the reach of Electronic Clearing Services and Electronic Funds Transfer by providing for systems with the latest levels of technology. The critical elements in the developmental strategy are the opening of new clearing houses, interconnection of clearing houses through the INFINET; optimizing the deployment of resources by banks through Real Time Gross Settlement System, Centralized Funds Management System (CFMS); Negotiated Dealing System (NDS) and the Structured Financial Messaging Solution (SFMS). While integration of the various payment products with the systems of individual banks is the thrust area, it requires a high degree of standardization within a bank and seamless interfaces across banks.           The setting up of the apex-level National Payments Council in May 1999 and the operationalisation of the INFINET by the Institute for Development and Research in Banking Technology (IDRBT), Hyderabad have been some important developments in the direction of providing a communication network for the exclusive use of banks and financial institutions. Membership in the INFINET has been opened up to all banks in addition to those in the public sector. At the base of all inter-bank message transfers using the INFINET is the Structured Financial Messaging System (SFMS). It would serve as a secure communication carrier with templates for intra- and inter-bank messages in fixed message formats that will facilitate ‘straight through processing’. All inter-bank transactions would be stored and switched at the central hub at Hyderabad while intra bank messages will be switched and stored by the bank gateway. Security features of the SFMS would match international standards.           In order to maximize the benefits of such efforts, banks have to take pro-active measures to:·     further strengthen their infrastructure in respect of standardization, high levels·     of security and communication and networking;·     achieve inter-branch connectivity early;·     popularize the usage of the scheme of electronic funds transfer (EFT); and·     Institute arrangements for an RTGS environment online with a view to integrating into a secure and consolidated payment system. Information technology has immense untapped potential in banking. Strengthening of information technology in banks could improve the effectiveness of asset-liability management in banks. Building up of a related data-base on a real time basis would enhance the forecasting of liquidity greatly even at the branch level. This could contribute to enhancing the risk management capabilities of banks. REGULATIONS AND COMPLIANCE          Progressive strengthening, deepening and refinement of the regulatory and supervisory system for the financial sector have been important elements of financial sector reforms. In the long run, it is the supervision and regulation function that is critical in safeguarding financial stability. There is also some evidence that proactive and effective supervision contributes to the efficiency of financial intermediation.   Financial sector supervision is expected to become increasingly risk-based and concerned with validating systems rather than setting them. This will entail procedures for sound internal evaluation of risk for banks. As mentioned earlier, bank managements will have to develop internal capital assessment processes in accordance with their risk profile and control environment. These internal processes would then be subjected to review and supervisory intervention if necessary. The emphasis will be on evaluating the quality of risk management and the adequacy of risk containment. In such an environment, credibility assigned by markets to risk disclosures will hold only if they are validated by supervisors. Thus effective and appropriate supervision is critical for the effectiveness of capital requirements and market discipline.           In certain areas, as for instance, in the urban cooperative banking segment, the regulatory requirements leave considerable scope for regulatory arbitrage and even circumvention. The problem is rendered more complex by the existence of regulatory overlap between the Central Government, the State Governments and the Reserve Bank. Regulatory overlap has impeded the speed of regulatory response to emerging problems. The need for removing multiple regulatory jurisdictions over the cooperative banking sector has been reiterated on several occasions. In this regard, the Reserve Bank has proposed the setting up of an apex supervisory body for urban cooperative banks under the control of a high-level supervisory board consisting of representatives of the Central governments, the State governments, the Reserve Bank and experts. The apex body is expected to ensure compliance with prudential requirements and also supervise on-site inspections and off-site surveillance.           Recent developments in certain segments of the financial sector have also brought to the fore issues relating to corporate governance in banks. As part of on-going reforms, boards have been given greater autonomy to prescribe internal control guidelines, risk management and procedures for market discipline and accountability. It is extremely important that greater vigilance over adherence to these norms goes hand-in-hand with greater autonomy. Recent evidence of transgression of prudential guidelines by a few banks has raised the issue of the audit and supervisory functions of boards. As we move towards a more deregulated financial regime, these functions have to be transferred from either the Government or the Reserve Bank to bank boards. This imposes a greater responsibility and accountability on the bank management. It is in this context that a consultative group of directors of select banks and other experts has been set up to recommend measures to strengthen the internal supervisory role of boards. The objective is to obtain a feedback on how boards function vis-à-vis compliance with prudential norms, transparency and disclosure, functioning of the audit committee, etc. , and to devise effective mechanisms for ensuring management discipline.           Several other initiatives in improving the supervisory function have been undertaken, including a prudential supervisory reporting system for financial institutions, improvements in procedures for financial inspection, sensitizing the general public for better regulation of the activities of NBFCs and enactment of appropriate legislation to protect depositor interests in some States. Major legal reforms have been initiated in areassuch as security laws, the Negotiable Instruments Act, bank frauds and the regulatory framework of banking. The Reserve Bank has also accepted the principle of transfer of ownership to the Government in respect of some financial institutions in view of the conflict of interest that may arise in the conduct of its supervisory function. It is expected that these initiatives will pave the way for an efficient, and risk-based supervisory environment in India.           The largest set of consolidated regulations that mandate integrity of data in India are the IT Act and SEBI’s clause 49 for listed companies. These regulations do not currently enforce the kind of security standards that are common in Europe and the US. In a global economy, however, no company is an island and India Inc is adopting US and European compliance procedures and certifications such as Sarbanes Oxley, Safe Harbour, BS, and ISO.           Compliance, regulatory or otherwise, does not directly concern the IT department. In manufacturing for instance, compliance controls don’t really involve system security, and a large part of the quality control required by authorities cannot be imposed or enforced using IT. Companies that deal with sensitive information, financial services and BPOs, banks, MNC subsidiaries or those with plans to expand beyond Indian shores are all affected. These will continue to make strides towards compliance. For the mediumscale segment (Rs 100-300 crore turnover), security and audits are not a priority. This segment is comfortable with public mail servers, and exchanging information over not very secure connections. CORPORATE GOVERNANCE – CODE OF CONDUCT1. Need and objective of the Code           Clause 49 of the Listing agreement entered into with the Stock Exchanges, requires, as part of Corporate Governance the listed entities to lay down a Code of Conduct for Directors on the Board of an entity and its Senior Management. The term “Senior Management” shall mean personnel of the company who are members of its core management team excluding the Board of Directors. This would also include all members of management, one level below the Executive Directors including all functional heads. 2. Bank’s Belief System          This Code of Conduct attempts to set forth the guiding principles on which the Bank shall operate and conduct its daily business with its multitudinous stakeholders, government and regulatory agencies, media and anyone else with whom it is connected. It recognizes that the Bank is a trustee and custodian of public money and in order to fulfill fiduciary obligations and responsibilities, it has to maintain and continue to enjoy the trust and confidence of public at large.           The Bank acknowledges the need to uphold the integrity of every transaction it enters into and believes that honesty and integrity in its internal conduct would be judged by its external behavior. The bank shall be committed in all its actions to the interest of the countries in which it operates. The Bank is conscious of the reputation it carries amongst its customers and public at large and shall endeavor to do all it can to sustain and improve upon the same in its discharge of obligations. The Bank shall continue to initiate policies, which are customer centric and which promote financial prudence. A. General Standards of conduct          The Bank expects all Directors and members of the Core Management to exercise good judgment, to ensure the interests, safety and welfare of customers, employees and other stakeholders and to maintain a cooperative, efficient, positive, harmonious and productive work environment and business organization. The Directors and members of the Core Management while discharging duties of their office must act honestly and with due diligence. They are expected to act with that amount of utmost care and prudence, which an ordinary person is expected to take in his/ her own business. These standards need to be applied while working in the premises of the Bank, at offsite locations where business is being conducted whether in India or abroad, at Bank-sponsored business and social events, or at any other place where they act as representatives of the Bank. B. Conflict of Interest          A “conflict of interest” occurs when personal interest of any member of the Board of Directors and of the Core management interferes or appears to interfere in any way with the interests of the Bank. Every member of the Board of Directors and Core Management has a responsibility to the Bank, its stakeholders and to each other. Although this duty does not prevent them from engaging in personal transactions and investments, it does demand that they avoid situations where a conflict of interest might occur or appear to occur. They are expected to perform their duties in a way that they do not conflict with the Bank’s interest such as :· Employment /Outside Employment – The members of the Core Management are expected to devote their total attention to the business interests of the Bank. They are prohibited from engaging in any activity that interferes with their performance or responsibilities to the Bank or otherwise is in conflict with or prejudicial to the Bank. · Business Interests – If any member of the Board of Directors and Core Management considers investment in securities issued by the Bank’s customer, supplier or competitor, they should ensure that these investments do not compromise their responsibilities to the Bank. Many factors including the size and nature of the investment; their ability to influence the Bank’s decisions, their access to confidential information of the Bank, or of the other entity, and the nature of the relationship between the Bank and the customer, supplier or competitor should be considered in determining whether a conflict exists. Additionally, they should disclose to the Bank any interest that they have which may conflict with the business of the Bank. C. Applicable Laws      The Directors of the Bank and Core Management must comply with applicable laws,regulations, rules and regulatory orders. They should report any inadvertent non -compliance, if detected subsequently, to the concerned authorities. D. Disclosure Standards      The Bank shall make full, fair, accurate, timely and meaningful disclosures in the periodic reports required to be filed with Government and Regulatory agencies. The members of Core Management of the bank shall initiate all actions deemed necessary for proper dissemination of relevant information to the Board of Directors, Auditors and other Statutory Agencies, as may be required by applicable laws, rules and regulations. E. Use of Bank’s Assets and Resources      Each member of the Board of Directors and the Core Management has a duty to the Bank to advance its legitimate interests while dealing with the Bank’s assets and resources. Members of the Board of Directors and Core Management are prohibited from:·   Using Corporate property, information or position for personal gain,·   Soliciting, demanding, accepting or agreeing to accept anything of value from any person while dealing with the Bank’s assets and resources,·  Acting on behalf of the Bank in any transaction in which they or any of their relative(s) have a significant direct or indirect interest. F. Confidentiality and Fair Dealings(i) Bank’s confidential Information·   The Bank’s confidential information is a valuable asset. It includes alltrade related information, trade secrets, confidential and privileged information, customer information, employee related information, strategies, administration, research in connection with the Bank and commercial, legal, scientific, technical data that are either provided to or made available each member of the Board of Directors and the core Management by the Bank either in paper form or electronic media to facilitate their work or that they are able to know or obtain access by virtue of their position with the Bank. All confidential information must be used for Bank’s business purposes only. ·    This information includes the safeguarding, securing and proper disposal of confidential information in accordance with the Bank’s policy on maintaining and managing records. The obligation extends to confidential of third parties, which the Bank has rightfully received under non-disclosure agreements. ·   To further the Bank’s business, confidential information may have to be disclosed to potential business partners. Such disclosures should be made after considering its potential benefits and risks. Care should be taken to divulge the most sensitive information, only after the said potential business partner has signed a confidentiality agreement with the Bank. ·     Any publication or publicly made statement that might be perceived or construed as attributable to the Bank, made outside the scope of any appropriate authority in the Bank, should include a disclaimer that the publication or statement represents the views of the specific author and not the Bank. (ii) Other Confidential Information      The bank has many kinds of business relationships with many companies and individuals. Sometimes, they will volunteer confidential information about their products or business plans to induce the Bank to enter into a business relationship. At other times, the Bank may request that a third party provide confidential information to permit the Bank to evaluate a potential business relationship with the party. Therefore, special care must be taken by the Board of Directors and members of the Core Management to handle the confidential information of others responsibly. Such confidential information should be handled in accordance with the agreements with such third parties. ·   The Bank requires that every Director and the member of Core Management, General Managers should be fully compliant with the laws, statutes, rules and regulations that have the objective of preventing unlawful gains of any nature whatsoever. ·   Directors and members of Core Management shall not accept any offer, payment, promise to pay or authorization to pay any money, gift or anything of value from customers, suppliers, shareholders/ stakeholders etc that is perceived as intended, directly or indirectly, to influence any business decision, any act or failure to act, any commission of fraud or opportunity for the commission of any fraud. 4. Good Corporate Governance Practices      Each member of the Board of Directors and Core Management of the Bank should adhere to the following so as to ensure compliance with good Corporate Governance practices. (a) Dos§ Attend Board meetings regularly and participate in the deliberations and discussions effectively. §  Study the Board papers thoroughly and enquire about follow-up reports on definite time schedule. § Involve actively in the matter of formulation of general policies. ·     Be familiar with the broad objectives of the Bank and policies laid down by the Government and the various laws and legislations. ·     Ensure confidentiality of the Bank’s agenda papers, notes and minutes. (b) Don’ts·     Do not interfere in the day to day functioning of the Bank. ·     Do not reveal any information relating to any constituent of the Bank to anyone. ·     Do not display the logo / distinctive design of the Bank on their personal visiting cards / letter heads. ·     Do not sponsor any proposal relating to loans, investments, buildings or sites for Bank’s premises, enlistment or empanelment of contractors, architects, auditors, doctors, lawyers and other professionals etc. ·     Do not do anything, which will interfere with and/ or be subversive of maintenance of discipline, good conduct and integrity of the staff. 5. Waivers·  Any waiver of any provision of this Code of Conduct for amember of the Bank’s Board of Directors or a member of the Core Management must be approved in writing by the Board of Directors of the Bank. The matters covered in this Code of Conduct are of the utmost importance to the bank, its stakeholders and its business partners, and are essential to the Bank’s ability to conduct its business in accordance with its value system. ENTREPRENEURSHIP      Entrepreneurship is the practice of starting new organizations, particularly new businesses generally in response to identified opportunities. Entrepreneurship is often a difficult undertaking, as a majority of new businesses fail. Entrepreneurial activities are substantially different depending on the type of organization that is being started. Entrepreneurship may involve creating many job opportunities.       Many “high-profile” entrepreneurial ventures seek venture capital or angel funding in order to raise capital to build the business. Many kinds of organizations now exist to support would-be entrepreneurs, including specialized government agencies, business incubators, science parks, and some NGOs. Schumpeter (1950), an entrepreneur is a person who is willing and able to convert a new idea or invention into a successful innovation. Entrepreneurship forces “creative destruction” across markets and industries, simultaneously creating new products and business models and eliminating others. In this way, creative destruction is largely responsible for the dynamism of industries and long-run economic growth. Despite Schumpeter’s early 20th-century contributions, the traditional microeconomic theory of economics has had little room for entrepreneurs in their theories. Characteristics of entrepreneurship:-§   The entrepreneur, who has a vision and the enthusiasm for this vision, is the driving force of an entrepreneurship§   The vision is usually supported by a set of ideas that have not been aware by the majority of the market/industry§   The overall blueprint to realize the vision is clear, however details may be incomplete, flexible, and evolving§    The entrepreneur promotes the vision with an influential passion§   With a persistent and deterministic mindset, the entrepreneur devises a set of entrepreneurial strategies to thrive for the visionPERFORMANCE AND BENCHMARKING• PERFORMANCE MANAGEMENT:-      Performance management is a systematic approach to improving worker productivity through a year-round, ongoing process of communicating and managing performance expectations. With Performance-based Management, performance improvement becomes the joint responsibility of employees and their managers. Generally there are two things which determine how successful a performance appraisal system is in place in an organization.       1) The contents/design of the performance appraisal form and      2) The manner in which Performance Appraisal is conducted.       While organizations lay great emphasis on the contents/design part, spending much of time, money and energy on designing most suitable, objective, comprehensive formats, it serves no purpose if the appraising process is not conducted properly.       Performance-based Management measures, evaluates and improves performance on the job. You can expect employee productivity to increase because performance assessments and performance feedback will always be job-related, even if the duties of a particular job expand or change. Furthermore, because this type of performance management focuses on productivity and not personality and since it involves ongoing, open, two-way communication between manager and employee, it greatly reduces many of the stereotypes, problems and anxieties associated with traditional labor-intensive       A benchmark is a point of reference for a measurement. The term presumably originates from the practice of making dimensional height measurements of an object on a workbench using a graduated scale or similar tool, and using the surface of the workbench as the origin for the measurements.       Benchmarks are designed to mimic a particular type of workload on a component or system. “Synthetic” benchmarks do this by specially-created programs that impose the workload on the component. “Application” benchmarks, instead, run actual real-world programs on the system. Whilst application benchmarks usually give a much better measure of real-world performance on a given system, synthetic benchmarks still have their use for testing out individual components, like a hard disk or networking device. Computer manufacturers have a long history of trying to set up their systems to give unrealistically high performance on benchmark tests that is not replicated in real usage. For instance, during the 1980s some compilers could detect a specific mathematical operation used in a well-known floating-point benchmark and replace the operation with a mathematically-equivalent operation that was much faster. However, such a transformation was rarely useful outside the benchmark. Manufacturers commonly report only those benchmarks (or aspects of benchmarks) that show their products in the best light. They also have been known to mis-represent the significance of benchmarks, again to show their products in the best possible light. Taken together, these practices are called bench-marketing.        Users are recommended to take benchmarks, particularly those provided by manufacturers themselves, with ample quantities of salt. If performance is really critical, the only benchmark that matters is the actual workload that the system is to be used for. If that is not possible, benchmarks that resemble real workloads as closely as possible should be used, and even then used with skepticism. It is quite possible for system A to outperform system B when running program “furble” on workload X (the workload in the benchmark), and the order to be reversed with the same program on your own workload. • BENCHMARKING:-        Benchmarking (Comparing) is a selective method of finding out how and why some companies can perform tasks much better than other companies. There can be as much as a tenfold difference in the quality, speed and cost-performance of an average company versus a world-class company. It involves the following seven steps1) Determine functions to benchmark. 2) Identify the key performance variables to measure. 3) Identify the best-in-class companies. 4) Measure performance of best-in-class companies5) Measures the company’s performance. 6) Specify programs and actions to close the gap7) Implement and monitor results      A company can identify “best practices” companies by asking employees, customers, suppliers and distributors what they rate as doing the best. Major Consulting Firms can also be contacted for this purpose. To keep costs under control, a company should focus primarily on benchmarking those critical tasks that deeply affect customer satisfaction and Cost Management and where substantially better performance is known to exist.       Benchmarking is a process used in management and particularly strategic management, in which businesses use industry leaders as a model in developing their business practices. This involves determining where you need to improve, finding an organization that is exceptional in this area, then studying the company and applying it’s best practices in your firm. Benchmarking systematically studies the absolute best firms, then uses their best practices as

Nidheesh K B Lecturer Department of Commerce School management Pondicherry University. Pondicherry in India.
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