Boston Consulting Group's take on Indian banks

T ake up one idea. Think of it, dream of it, live on that idea. Let every part of your body be full of that idea and just leave every other idea alone. This is the way to success: Swami Vivekananda

In an atypical communication to all public sector banks, the Finance Ministry last month circulated a Boston Consulting Group (BCG) report on Being Five Star in Productivity: Roadmap to Excellence in Indian Banking .

Quite distinct from the usual dull bureaucratese, this missive from the Ministry comes as a whiff of fresh air, both in terms of its intent and content.

As the BCG report itself points out, rather poetically, we are “in the midst of an economic maelstrom, when India stands out as a relative oasis of stability”. The report's circulation has not come a day too soon for the “thinking heads” of our banks to ponder and reflect.

FIVE FOCUS AREAS

BCG argues that our banks (mainly, the public sector) have to aim at excellence in five areas – branch sales and service, new channels, lean operations, organisation design and bad debt management.

—In branch sales and service excellence, the report points out that Indian banks deploy 62 per cent of staff in customer-facing roles as against the “global benchmark of 82 per cent”. It recommends role redefinition of staff, redesign of the branch format, process re-engineering, simplifying of product-portfolios and deployment of maximum staff at customer interfaces.

— BCG pitches for increased usage of new channels and advocates “embracing the mobile”. New channels will not only enhance productivity but can be a source of new customer acquisition, the report says.

— Emphasising the need for process re-engineering, the report suggests reduction of non-customer value-adding activities like too-many handovers, unnecessary paper movement, repetitive checks and reviews to improve the Turn Around Time (TAT).

— In organisation design, the BCG recipe is for “delayering” and bolstering of finance and HR expertise in public sector banks. It also calls for the long-stuck reform of the public sector compensation model.

— On bad debts, the report pushes for new risk management policies with definitive roles for both Government and RBI in creating an enabling and facilitative environment.

THE REPORT'S POSITIVES

While the focus of the slim BCG report is incontrovertible, a closer reading reveals that it is only as good as a curate's egg. There are eminently acceptable and immediately implementable suggestions like redefinition of the role of a branch manager as the “CEO of local business”, simplicity in targets (the list of targets for a branch manager now being as high as 60-90), simplification of product portfolio (some banks now offer as many as 200 products in retail) and the need to improve TATs in retail loan processing.

The emphasis on the need to reform the public sector compensation model is also relevant as our banks are now facing a major talent deficit with the crème- de- la-crème of job-seekers going to IT/other services. tTill the 80s, a bank officer's job was seen as an attractive option.

SERIOUS FLAWS

Also, there is justified concern, forcefully expressed by the BCG, on the current vigilance-inspired accountability framework which encourages bank officers (mainly in credit) to go by the book even if it is against better business judgement.

Where the report errs is in the straight-forward comparison it attempts between Indian banks and international banks under most of the metrics.

Our social milieu, growth with equity imperatives (priority sector norms, for instance) and the regulatory framework (SLR/Indian Govt. borrowing being done only internally and not internationally) are so different from the banking system that is common to the developed economies, particularly the G-7.

In fact, the issues in banking development and quest for excellence in the E-7 (coined by Pricewaterhouse Coopers in 2006 for India, China, Brazil, Russia, Mexico, Indonesia and Turkey) are very different from those of the G-7.

The comparisons attempted by BCG may hence not even be between oranges and apples — it may more be like comparing oranges and orangutans!

Another drawback is that the report is mainly retail-focused. This arises out of a basic flaw of predicating the discussion on a comparison with the “global best and the global median”. The Indian experience is so different that to seek solutions or suggest alternatives by comparing our banks with banks in the developed world would be self-defeating.

For example, Barclays and Standard Chartered have a retail assets to total assets ratio of nearly 50 per cent (2010-December) while our national banking icon, SBI, has a retail assets ratio of only 13 per cent (March ,2011).

LOOK WITHIN

One could even argue that our experience and development objectives are so unique that we have to tailor our own independent solutions for all our banking issues. We may look outside for lessons, but the solutions have to be based on our distinctive socio-politico-economic template. Where else in the world will you come across such high credit-morality as in our rural areas where a farmer commits suicide just because he is unable to repay a debt?

We do not have to look beyond the retail borrowers of the U.S. or our own corporate borrowers to understand this difference.

The report also has missed our financial inclusion imperatives, notwithstanding a few fleeting references.

The authors would have done well to recall a bit of our national banks' history – Ammembal Subba Rao Pai who founded Canara Bank, for instance, said his objective is to make the bank not only the “financial heart” of the community but its “social heart” as well.

Sir M. Viswesariah, who founded State Bank of Mysore, wanted it just to implement the Government's policies for development.

Lala Lajpat Rai who sowed the seed of Punjab National Bank wanted it to further the Swadeshi cause.

Better insights and solutions could have been had by looking at our own banking heritage rather than outside our shores.

But this in no way detracts from the very-welcome focus of BCG on the pursuit of excellence as a mission for our banks. In that sense, the report is an idea whose time has come.

(The author is with State Bank of Mysore. The views are personal.)