Branch banking: the new paradigm

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: The significance of the simultaneous opening of 101 branches by the country’s premier commercial bank, SBI, has eluded most of observers and commentators. While it may be a bit of a hyperbole to say that the event marks a big bang return of brick & mortar banking, it is almost certainly a statement in bold relief of the continued importance of spatial presence of commercial banks across various geographical locations.

This also by itself is an eloquent and resounding rebuttal of the supremacy of virtual banking anchored around state of the art IT backbone, over conventional branch driven banking. This should silence the vocal votaries of wired banking, who have been writing the epitaph of conventional banking on the basis of their view of the evolving banking scenario through a limited aperture of relative success of a couple of banks.

This event has constituted a re-entry vehicle for SBI, the public sector banking behemoth, into the centre stage to reclaim its rightful place.

Tomes were being written on redundancy of the public sector banking business model, especially in the context of the present financial and banking ambience, both domestic and international.

There is no gainsaying that government sector banks suffer from certain inherent shortcomings and inadequacies. Some of these could act as serious impediments to their competitive edge in the market place, diluting their standing in the financial architecture of the country. A highly regimented control apparatus, archaic internal guidelines, evolved principally to keep at bay subsequent investigation by the state’s punitive machinery of purely commercial decisions, rapid depletion of quality human resources pool are some of these.

However, it must be conceded that the top management of these seriously disadvantaged banks, backed by some real time solid support from the government, initiated and implemented a policy package, which to a large extent contained the fallout.

In the process they came up trumps by turning out excellent performance, continuously for the past 3 to 4 years. Notable among them have been PNB, Union Bank, Bank of India, and Bank of Baroda, apart from the ubiquitous SBI. One can only appreciate that if these banks had the flexibility of the foreign and private sector banking counterparts, they could have done considerably better and reasons for this are not far to seek.

For starters, these banks have been bestowed with the advantage of a relatively large tenure of the top management (of minimum period of two years). This paved the way for younger and more dynamic set of senior executives getting entrusted with the task of steering the course of events for such banks. This also left them with adequate time to leave their imprint on the organisation. The government has also provided for a performance bonus for a bench-marked target achievement. Grossly inadequate though, in financial terms, contrary to what the private and foreign banks top officials get, it still manages to introduce an element of recognition of good deeds done.

Simultaneously the wings of an unintended power centre represented by the staff unions were clipped fairly adequately on account of some planned and calibrated measures and some fortuitous developments. This left the present crop of top functionaries of these banks to concentrate more on banking work than on such frivolities like the staff canteen menu.

Parallel to these, positive developments like staff rationalisation and initiation of state of the art IT support system were gradually put in place taking advantage of the relative dwindling of the collective bargaining power of these staff unions. All this paved the way for a fusion banking model, incorporating the best of both the private sector and public sector banking models, like solid branch network anchored around a strong IT backbone. Aided by these positives, the chiefs of these banks have displayed rare spunk in facing challenges of the market place and turned out year after year extremely satisfactory performance. Little wonder that the chiefs of such banks like SBI, PNB, BOB, BOI and Union Bank are exuding confidence in their private and public discourses.

Now, the obvious question is about the road map now for them. For one, these banks have still not fully encashed the true economic potential embedded in their branch network especially in rural and semi urban areas. In the context of a global food shortage looming large, this network can be leveraged to increase the agricultural production and productivity, dissemination of technology, backward and forward linkages, etc.

Whosoever would like to access this potential tool to answer this serious challenge of the 21st century can be made to pay a suitable price for it. Thus, an opportunity would present itself before these banks to monetise this gold mine lying within them. They have to price it appropriately which will go a long way in addressing their future capital requirement issue. However, in all this, a serious challenge will be encountered on the human resources front.

These banks some three decades back could access good quality human resources from the talent hinterland. With the scenario having undergone a sweeping change in the last two decades, talent supplies to them have tapered off. They have now started seeing the ‘graying’ of their capability pool.