Secure your Borrower

I was shivering with nervousness as I punched the phone number on my cell phone. My voice trembled enough to let the receiver of the call know that I was subjected to third degree. My friend the lawyer on the other side said, ‘why is a white collared person reacting like a common criminal? Have you done something for the Economic Offences wing to pick you up?’ ‘No’ I tried to assure him, ‘I am in a Bank trying to get a loan and he is asking me so many details and taking so much assurances that I need your advice.’ Knowing him to be a typical middle class, I braced myself for the inevitable advice. ‘Never borrow so that you can sleep well. If you needed some money to tide over some crisis, you should have asked me.’ ‘Thanks’ I answered him, ‘it is a housing loan for a house in Mumbai and you certainly would not have lent me one crore Rupees.’ ‘Oops’ he stuttered at his folly.

‘What is the precise issue with the Banker?’ asked my lawyer friend. ‘I have to sign lots of papers which I have never heard before.’ I answered. ‘For example, there is a sheet that I have to undertake not to divorce my wife before I settle the loan.’ Hearing this, my friend was audibly startled. ‘I never knew your marriage was in such a state.’ ‘It is not’ I assured him, ‘but they want double assurance of no division in my assets which would be divided under a court order in case of a divorce.’ ‘That is one hell of thinking in advance’ my friend observed as I heard him shuffle some papers or books. ‘Here it is’ he screamed, ‘in the case of Commercial Bank of Rajasthan vs. Mishra & Misra of Rajasthan High Court, when the borrower defaulted, his assets which were adequate at the time of borrowing were not sufficient at the time of settlement as property was divided between him and his wife under court order. The borrower also could not be held for fraud as the property was transferred by a court order. Therefore the Bank wanted to recover from the Court.’ I was appalled. ‘You mean the taxpayer’s money was ultimately used to settle his loan?’ My friend lawyer was shocked at my ignorance of the times, ‘do you mean to say you have not heard of the term ‘BAILOUT’? It was referred so many times when the US Government used taxpayer’s money to bail out Banks, Car companies etc. during the recent recession."

‘I am willing to sign any paper but my wife too has to sign it and she is not willing’ I lamented. ‘What is she saying?’ my friend asked. I quoted her verbatim, ‘Why should I close my options as no-one can predict where any relationship will lead and when any relationship will sour.’ There was silence at the other end as there was no argument to a universal truth.

‘There are more funny papers’ I continued. ‘Take the example of a will that the Banker is forcing me to write in his format. Initially I thought the Banks assumed the loan conditions and installments will give me enough tension to kill me and that is what they expect. The Bank claims that by this paper my survivors will get my property but only after the Bank’s claim is first settled. In this paper I would be also appointing Bank’s department of ‘Executors’ as administrator of my estate and this service will be given to me free!’ Was I now supposed to dance and clap my hands in glee at this free service which was nothing but their insurance to control their claim?

Talking about insurance, they also made me subscribe to a life insurance policy from their own subsidiary UCUC BOMBARD though I had sufficient policies from the good old LIC corporation. Of course the settlement would be made to the Bank is what I had to sign. Along with the policy application was a paper that I had to undertake to not commit suicide since no life insurance claim is settled for suicides. I had paused here but the Banker persisted that to ensure that claim is settled, this paper is a must. Also, as evidence that I was continually of sound mind and not depressed enough to commit suicide, they needed proof for which I had to visit their panel psychiatrist every half year at my cost. Whew. Talk about securing their loan!

After securing my mind and body for their loan as well as my future generation through my will, they still had the gall to shove another paper under my nose. My face turned beetroot red as I read it. It was an undertaking to ensure that I did my job diligently at my place of employment to ensure I was not fired and also did not go wayward in any way to jeopardise my chances of promotion and thus my increment. The universal truth about promotions being politically driven was not considered in this paper. Even my employer who would have best benefitted by such an undertaking had not taken such from me or anyone else. By this time I was so tired that I was willing to sign even a blank paper. ‘Do you think any person purposely would get himself fired?’ I asked the Banker. ‘No; but we know that but some people take the risk which backfires and they land up without a job which makes our loan account a NPA (Non performing Asset).’ It was then that I noted the second para of a single line that in case I wished to change my job voluntarily, I would have to first seek the permission of my Banker.

I was chained and shackled to my Banker just because I took a loan. You must have heard the phrase of persons who make super profits ‘Laugh their way to the Bank.’ Now I think it is time for the other phrase for people who take loans from Banks as ‘Cry & Cry their way from the Bank and thereafter forever.’

Is Technology the panacea of weak co-operative Banks?

Indian Banking industry has the appreciative feature of being more mature than that of other industries especially in comparison to the neighbors. It is also true that countries like Malaysia have proved it otherwise by leapfrogging in the last decade. India has the motley mix of Banks such as Scheduled (nationalized), Private, and Co-operative Banks. Due to the vast terrain and uneven development and for some historical factors, co-operative Banks have made inroads into areas where other Banks have not looked at. In the very interior of the country, the co-operative Bank is the only one saving the population from the ancient system of burying pots of gold as savings or burdened under the unjust arithmetic calculation of the moneylender.

Urban co-operative Banks have given a mixed image to the layman. It is often joked that for every politician, there is a co-operative Bank. Easily granted loans and turning a blind eye at the time of recovery of such loans is often a disguised vote solicitation technique. There was even a hue and cry when RBI banned co-operative Banks from giving advances to their own Directors perhaps from the ignoramus who never grasped the true principle of co-operation casting a shadow of suspicion even on the correctly modeled and run co-operative Banks. Reserve Bank of India has already initiated steps to recognize them as Banks as against just a co-operative society which would otherwise club then with housing and marketing societies, thus increasing RBI’s control over them. The Prudential norms and Asset classification is diluted only nominally for the non-urban co-operative Banks. Merger of weaker Banks into the stronger ones is encouraged also from the Income Tax angle by taxing the co-operative Banks so that at the time of merger, the acquired loss can be set off which should be a major encouragement factor for the acquiring Bank just as this is one of the major considerations (other being market share) whenever a company acquires another. With just a year or so available for recovery, what are the various strategies adopted by Banks are on the ‘borderline’ of sound health?

System audit executed by the author in more than 30 co-operative Banks, evoked cause of concern and cry for change of software vendor. Ironically, the co-operative sector whose management has been known to be weaker than either the scheduled Banks or the private sector Banks, justifiable deserved strong software support but coupled with absence of defined quality for software (even till date), the introduction of application platforms such as Dbase and FoxPro permitted a skeletal force of developers, even one man operations to develop Banking applications which more often were just vanilla operation coverage with very low to nil security features. Such application packages were fertile grounds for fraudulent persons. In the next round of change, the vendor population dwindled to a mere handful. There are handful of software vendors in the Big Bank market and a different handful set in the co-operative Bank market. Whenever any vendor ‘crossed’ his market, the results were disastrous as events have proved themselves.

Core Banking is not only the fashionable platform of operation but also the necessity of the day to permit anywhere Banking and installation of Real Time Gross Settlement System (RTGS) which permits faster clearance of cheques by direct communication from the clearing cell of the RBI to the Bank’s RTGS server. With handful of vendors in the market, will the purchase of a standard core Banking package permit a borderline co-operative Bank bounce back to the pink of health? Before jumping to an answer which is controversial in itself, one has to appreciate the feature change from the old platform of Local Area Network (LAN) which may have come from much smaller a vendor though the size of the vendor may not be directly proportional to the efficacy of the software and its coverage. The noteworthy positive features of most of such applications are:
1. Most of the vendors themselves have graduated from the LAN during which time they have altered, added, enhanced and fine tuned the application to more than the vanilla feature of just posting and interest calculation.
2. Hardware costs and networking costs are continually reducing. Leased telephone line once a prerogative of the mightiest corporate, is commonplace in its role of networking. Continuous Branch connectivity which is the essential feature of core Banking is affordable to smallest of Banks.

Internal Audit teams have reported startling improvements in efficacy of branches when the Bank implemented core Banking solution. The observations of the System Auditors was more easy to comprehend since many security duties were now executed through the Data Centre which now could be manned by appropriate personnel which was not possible in the LAN environment which would have demanded high end hardware and software engineers in every branch. Not only would the cost be prohibitive but there would not be sufficient work to retain the interest of the concerned personnel. The observations of the internal auditors (or even the concurrent auditors) on the improvement in work flow could be the result of the following:

1. Corebanking is real time software demanding that the transactions and even back office entries be passed thought the system.
2. Given the learning history of earlier LAN based software and the system audits that diced it, the software vendors installed all improvements that were either demanded by their client Banks or reported by the system auditors.
3. Discretion is therefore given a back seat in the interest of internal control. Core Banking has very few areas which have a manual over –ride.
4. Plethora of reports with a minimum of 100 reports on an average in each of the core banking solutions, one must be right for you! This may be the principle for satisfaction of the discriminatory. However, time reveals that even a 100 report output still falls short of management and legal needs even of the day.

Thus, from the simple action of opening a savings account to reporting health of a borrower, the system takes control with nary a loophole to exploit much to the delight of the auditors and most Bank managements. Thus, ensuring Income Tax PIN number capture to ensure legal compliance to correct interest and installments in arrears are system driven, suddenly removing all the irregularities observed by the previous auditors continuously over the years. Correction of the old data of course needs to be awarded priority to equalize data quality. The main assumption is of course the quality of the application as available under the professional eye of the handful experienced vendors and the Bank management’s intention to improve. Improvement in housekeeping and reporting in itself admittedly does not constitute health of any Bank. But when a struggling Bank no longer has to take Herculean efforts in the departments of housekeeping and accurate reporting, the manpower is available for ‘recovery’ and marketing. Training is an essential input of this service industry which demands time. Core Banking application will make available this time. Marketing and proper scrutiny of applications will thus be possible in the given time frame. All this is expected to improve the Bank’s health. But will all this possible in the restricted time of one year? Very difficult is the consensus but it is assured that the ‘direction’ of the health of the Bank will turnaround for the better. The very ambitious managements may be able to even achieve a complete health turnaround in a small time frame too – all thanks to core Banking.