Blame technology, faceless banking for recent scams: OP Srivastava

With the RBI giving licence in 1995 to private sector banking, technology was introduced in a big way, bringing fundamental changes in the way banking was done in India. Technology was used as a tool to enhance customer convenience, expand reach, handle the growing scale of operations, enhance transparency and bring speed in the decision-making process. It helped the new generation banks to expand their network and volume of business in a short period of time. I was amongst those who pioneered the introduction of modern technology in the banking industry in India, including setting up India’s largest ATM and retail branch network.

Coupled with savvy branding, these new banking avatars became a success story, to be envied by their public sector competitors. The new banks changed the perception of the public as well as the regulatory authorities about the model of banking in India. PSBs also started copying the new technology-based model of banking. Apart from developing new means of convenience banking, technology also brought in fundamental changes in the structure and human resource practices adopted by the new generation banks.

The unprecedented growth of private sector banks created an exponential growth in the requirement of manpower in these banks. In the beginning, a large number of ‘bankers’ shifted from public sector to private sector to meet this demand, but that was not enough. Additionally, due to the introduction of new technology-based products and services like credit cards, call centres, personal loans, car loans, consumer loans etc, the skill-sets required by these new banks was not available in the traditional banks.

Yes. This gap triggered the recruitment of a large group of people from non-banking areas like sales, marketing, logistics, branding, advertising, information technology, etc. Such non-bankers or product specialists were inducted in the private sector banks at various levels to run the new ‘brick-and-click’ model. This new set of people had no grooming in the basics of banking, but were experts in their specific area of products and services. The employee profiles started becoming heterogeneous within these banks.

In order to create space for these non-bankers to work within a traditional banking structure, it became necessary to tweak the prevailing structure of the banks. It was therefore found expedient to insulate them from the core banking functions and allow them to work in specific verticals so that they could work exclusively for the delivery of the specific products or the services for which they were recruited.

Yes, it did. In order to accommodate these new entrants, the traditional matrix of administrative structure, consisting of rows and columns, was reengineered. Earlier, a typical PSB had horizontal rows representing different sized branches or business units and the vertical columns representing various departments or divisions. Each column had its own hierarchy based on the seniority and each row has its hierarchy based on the size of business unit. Communication in such a structure can travel horizontally as well as vertically and diagonally in case of a specific need. This structure facilitates communication in all possible directions within the bank. In essence, the structure helps in letting the left hand know what the right hand is doing. Everyone within the system knew what the other person’s role and responsibilities were. This free flowing communication in a matrix-based model of banking ensured that any communication going out of the bank was unified, uniform and non-conflicting.

However, in case of private sector banks, saddled with a huge number of people with no exposure to basic banking, a need was felt to house them in specific verticals or silos. They were given independent targets and were allowed to reach out to customers based on their own marketing strategy. A number of such product-based silos came up and they all started reaching out to the customer in the open market, sometimes even competing with each other for the same piece of business.

Before nationalisation, a bank customer used to visit a ‘branch’ for all his/her banking needs, and the branch manager was the sole point of contact. Suddenly, the customer found that he or she was being independently chased by a number of people from the same bank, sometimes offering conflicting advice in order to push a particular product. For example, one person from the bank would advise the customer to invest money in fixed deposits, another recommended mutual funds, and the third one tried to lure them into the equity market. Similarly, different officials tried to woo the same customer at the same time to sell insurance, credit card, or a third party product.

This new, multi-pronged and aggressive approach of marketing various products under the same brand was called “Universal Banking”. The idea to offer all products to a customer on a platter was well intended. But this kind of banking resulted in one customer being targeted by a number of salesmen from the same bank, whose products overlapped and confused the customer. This led to dilution of trust and the banker’s word started losing credibility. The customer slowly began distancing himself from the bank and the banker became a suspect. Today, many customers often disconnect calls from their own bank!

At the branch level also, there are these product representatives fighting with each other to grab a piece of the customer’s wallet. There have been instances when such aggressive marketing strategies have resulted in unprofessional advice being doled out to an unsuspecting customer, increasing the trust deficit. The same pattern has been followed by the PSBs as well.

The introduction of technology did succeed in achieving a large number objectives for the banking industry. Banking came to the doorstep of the customers, but probably it stopped there itself. Technology was used in all areas except one: maintaining, sustaining and strengthening the bond of trust between the bank and the customer.

In the new model of technology-based banking, the very first casualty was the relationship between the customer and the bank. Instead of being a person, the customer became just a number for the bank. The new concept of looking at a customer just as a ‘digit’ was a questionable approach. Thus technology diluted the emotional connect between the two making the relationship more and more impersonal. Technology increased the number, the reach, the volume and the spread but failed to enhance the bond of connectivity. It brought in speed and cost-effectiveness, but also insensitivity. It made the customer-bank relationship impersonal and to some extent inhuman. Wallet, not the face, came to the fore.

Due to their influx, the performance reward system was tweaked, especially in the private sector banks. Instead of the prevailing ‘team approach’, the new mantra was to award the ‘best achiever’. Earlier, the banks encouraged ‘team performance’ and rewarded a ‘functional unit’ rather than any individual. The private sector banks, however, introduced the concept of rewarding individuals based on their achievements for the delivery of a single product or service. The financial rewards in terms of bonuses and perks were also attuned to individual performances, based on their star ratings, rather than the performance of a team or a unit.

This individual performance-based reward system, in a way, diluted the concept of a team’s performance or the shared responsibility. The creation of silos and the vertical movement of the people within a silo ensured that the banks started producing product specialists rather than ‘bankers’. Slowly, the bank started getting divided into a number of insulated ‘gated communities’ which were able to exist on their own without having the need to interact with the outside world or even within the bank. This non-traditional banking structure has now been more or less adopted by all the PSBs as well, primarily because of their desire to emulate the aura of private sector banks.

Of course. This kind of isolated gated community structure within a bank ensured that one ‘community’ within a bank had no need to know what the other ‘community’ was doing.

The dissemination of information or knowledge also started travelling in silos generating domain-wise experts or specialists, rather than ‘bankers’. The concept of a well- rounded banker gradually met with a slow death.

Today, one can come across a person working in audit or IT department of the bank, who has never been in field banking. As a result, when he is supervising the development of an IT-based solution for opening of a Letter of Credit, the insights of hands-on-experience of grassroots banking would be missing. Similarly, a product specialist assigned to do the audit of branch banking would find himself handicapped. These kinds of gaps or imperfections in the system, if not fixed, may cause structural damage to the backbone of banking. Slowly, the integrated backbone of the bank would develop gaps and fissures weakening the very edifice of the industry.

The happenings at the Fort branch is a small manifestation of the systemic decay which has been allowed to seep into the banking industry in the name of faster growth and expansion, leaving ‘isolated corners’ outside the purview or the vigil of the centralised or the unified operating and monitoring system of the bank. We now have a situation in the banks where the left hand does not know what the right hand is doing. The gated-community culture has now spread all over the banking industry.

It fact, the phrase ‘ pata nahin bhai’ , which was once used to refer to the ecosystem in a particular bank, can now be used for the entire banking industry, wherein one ‘island’ can continue to issue a stream of Letters of Undertakings (LoUs) without anyone else in the system coming to know about it.

This is what, I feel, has happened in the Indian banking system, where fraudsters have managed to fleece the banks without many in the system even knowing about it.