In Retrospect

Banking will never be the same again, in the aftermath of the Covid-19 impact. As many bankers work from home to handle day to day challenges and minimise business disruptions, their leaders are also making fresh business plans and budgets for the current financial year and building scenarios  for the next three to five years. Their earlier plans have been brought to nought by the Corona Virus !

In retrospect: Banking in India over the last 3 decades

At this critical juncture, it may be worthwhile to turn around and look at the last few decades. Banking as an industry and as a means to bringing about development and financial inclusion in the economy, had always fascinated me. As a child, I aspired to be an officer in a bank. And I have been a banker or have been a service provider to banks, in all my years of employment so far. I absolutely love being part of the industry. So let me capture the events in the Indian banking industry over the past few decades, by tracing the path of my own career.

The Mid-80s: From manual ledgers to Advanced Ledger Posting Machines (ALPMs)

After the first wave of nationalisation of banks in 1969, a second set of six banks were nationalised in 1980. I joined a  nationalised bank right after graduation in the mid-80s and learnt the full ropes of banking, done manually. I learnt how to write a cash receipt/payment scroll, day book, a branch’s consolidated general ledger, customers’ savings/current accounts in bulky ledgers, issue demand drafts/bankers cheques, issue  Letters of Credit, send a Telegraphic Transfer (TT) message, scrutinise and crystallize documents under a Letter of Credit, discount bills/receivables of a customer under a sanctioned limit, reconcile interbranch accounts and even perform salary calculations and disbursement for the entire staff of the branch! All manually done, with the support of adding machines with handles that one had to crank and rotate after inputting each number that needed to be added! There was a special allowance given to staff members operating ALPMs, which were the only vestige of automation that existed at that time. People working in banks today would wonder how we managed!

The 90s: Those were the good times!

From commercial banking, I moved to regulatory banking. I entered the hallowed portals of the Reserve Bank of India (RBI). Thanks to the extensive training being given to direct recruit officers, I got to know the working of each and every department of RBI. The interconnectedness between policy making as a regulator and policy implementor as a commercial banker was evident as the training progressed. My having worked in a commercial bank earlier, helped. The jigsaw puzzle fell in place and the picture of the banking sector as a whole, emerged. The seeds of automation in the payment and settlement systems were sown at that time in the form of  MICR cheques( Magnetic Ink Character Recognition) and IBM mainframes for reading and sorting the cheques for interbank settlements. I had the privilege of working under leaders who later on went on to become stalwarts and visionaries in the payment and settlement eco system in India.

Banks started computerisation of their accounting systems and made huge investments in core-banking systems. The fortunes of technology companies Infosys, TCS and the likes started looking up.  In early 1993, the RBI issued guidelines for the setting up of new private sector banks. The golden era of banking in India, had dawned. Much of what we see today in banks in terms of structure, technology etc. has it foundation in these reforms. It was the itch to be back in the front line, in commercial banking that led me to leave the regulator, join a new private sector bank and play an important role in its founding stages, its infancy and in its teen years. The unstinting hard work put in, challenges and hurdles overcome to create and deliver a new private sector bank, was indeed exhilarating!

Y2K challenges and the ensuing boom

Come 2000, banks became nervous about the impact of Y2K  on their core-banking systems, which they had set up with a lot of difficulty.  Luckily, India was spared major pains and losses since our systems were relatively new and the change in the date column to accommodate the change in century from the 1900s to the 2000s, had been taken into account.  After this initial hiccup, banking sector in India as a whole, grew by leaps and bounds, invested in  payments technology and cards, lent to housing and other retail needs and prospered in the first 10 to 15 years of the 21^st century. There were many challenges as well. The collapse of Global Trust Bank in 2004, the Lehman crisis in 2008, the Satyam fraud in 2009 and many such instances did push them back. But, on the whole, the growth trajectory was upwards, not downwards.

Outsourcing: A panacea for cost optimisation?

During this period, we saw many banks basing their growth plans on retail lending.  Housing loans, vehicle loans etc. needed to be sold briskly. This was also a time when banks were optimising costs. Outsourcing of selling through DSAs (direct selling agents), of back office operations through processing service providers, of technology operations through technology service providers became a means to save costs, increase efficiency and gave bankers to focus on their main banking activities.  This happened between the first and second decade of the century. This led to the emergence of the technology/service providers or the managed services industry –  a logical backward linkage to banking services.  This was the time I moved out of main banking and joined a financial technology service provider, providing services to multiple banks in India and across the world.

Micro-lending: A new paradigm emerges

While the banking sector was growing, there was a quiet revolution that was brewing in parallel. This was in the form of bit sized lending or micro lending, and lending for consumer durables. This was also growing in parallel and was becoming quite formidable. Ultimately, the banking industry had to acknowledge the power of these institutions to bring in financial inclusion. In November 2014, RBI allowed  such entities to set up small finance and payment banks. This gave the much needed fillip to these entities. While not all of them are doing well, some of them are giving the traditional banks, a run for the customer’s money! In some other cases, these banks are also proving to be the channel for financial inclusion plans of the traditional banks who have limited reach.

Since 2015, the burden of NPAs and provisioning for the same has put the brakes on growth in many banks. Demonetisation and GST implementation had slowed them down further. There have been consolidations and mergers since then, to ensure that the customer’s trust on banking is not eroded. And now they are hit by the pandemic!

As, I end this blog today in the midst of the lock-down, the entire banking industry is in ‘freeze mode’ as far as lending is concerned. The Government and RBI have been trying to get them to lend so that economic activity can start once the lock-down is lifted. There are challenges and it will be interesting to see how banks overcome these challenges. I will cover it in the next few blogs. Watch this space!

Share this post: on Twitter on Facebook on LinkedIn