BANKS: CHALLENGES AND OPPORTUNITIES

Banks at present are under tremendous stress because of ever-rising nonperforming assets (NPAs) and huge frauds which have taken a big toll on their profits, thus resulting into deterioration in their balance sheets as well as the brand image in the eyes of the public. Under these testing times, Banks are facing huge challenges which need to be faced with courage, maturity, dedication, hard work and tact. The challenges at present are enumerated as under:-

  1. The health of the Banks:-  The mounting NPAs, losses due to big frauds and continuous increase in operating expenses due to periodic increase in various types of variable costs such as salary, fuel, rent, and boarding lodging expenses are a big challenge for the banks to meet. These are a serious threat to the overall health of the banks. Concerned with this trend The Indian Banks Association (IBA) has offered a shockingly meager increase of only 2% to the bankers during the negotiations for the revision of their salary. This may be a cruel joke with the bankers but it speaks volumes about the health of the banks.
  2. Keeping the flock together:- Under the stress on resources, the workers get demoralized and start losing interest in the institution. Some may try to change job or search for the greener pastures. Only a team with high moral and a deep sense of belonging (A SENSE OF BELONGING)can keep the institution strong. This challenge needs a good and inspiring leadership at the top who could keep the flock together by providing guidance, hope, and good future to the stakeholders.
  3. Maintaining a sustainable growth:- With the graphs showing downwards trends, it is becoming difficult to manage growth in face of the tough national and international competition. All high-value proposals of multinational companies are taken by foreign banks who provide them credit at very cheaper rates because their cost of funds is very low. They can afford to give loans at thinner spreads and still make handsome profits because of high volumes and low cost of transactions. Because of reduced interests on deposits, the depositors are not attracted towards banks as in some cases, the net interest income after payment of income tax doesn’t cover the cost of inflation. Added to this is the fear in minds of the depositors about the introduction of a new law about bail-in in the banking sector, which though has been put on the back burners but people still have a fear in mind that the ghost may reappear at any time. They ponzy schemes and the crypto currencies like the Bitcoins have taken a big toll on the deposits of the banks. In view of stress on resources,  the banks are unable to fund large proposals.
  4. In-cumbersome procedures:-The age-old procedures of processing proposals with a lot of paperwork especially for the small traders and businesses and other small loans, discourage the perspective loanees from coming forward. Although some progress has been made in simplifying the procedure yet a lot needs to be done in order to attract customers.
  5. Comparatively Smaller unit size and strength of Banks:- Barring very few banks like State bank of India, the size, strength, capital base, and technological exposure of our banks is no match with the foreign banks. With the globalization and the world becoming a global village, our banks have to compete with the foreign banks. This is not possible unless we match their strength as well as the cost of operations.
  6. Diminishing of the physical interface:- With the introduction of technology in the banks, there is less interface with the customers as most of the transactions are done through the internet, mobile, or online banking, as is done in the foreign countries. Our culture, traditions, and behavior are different from theirs. Face to face interaction has an element of emotion to which we are used to, and the absence of which creates dryness in the relationship. With the increased size of business as well as the number of customers, it may be difficult to keep interface contact with them.
  7. Replacing the outdated technological infrastructure:- In order to match the competitors, the technological infrastructure needs to be updated or replaced with the more sophisticated and efficient one. This may not be economically feasible for the weak banks but in the face of competition and to ensure sustainable growth it becomes imperative to go for it. To stay in the market, an appreciable increase in the volume of business can only take care of the cost factor involved in the upgrading of electronic infrastructure. Only big volumes can reduce the cost of the transaction. The recent case of heavy costs incurred by banks while replacing the currency note holding trays of lakhs of ATMs, when the Govt. introduced new currency notes in place of old notes of different denominations is a live example of updating technology under compulsion in order to stay active in the market.
  8. Strengthening of internal controls:- In view of the rising NPAs and incidences of frauds, the strengthening of internal controls (DEFECTS IN BANK AUDITS AND INSPECTIONS) at any cost has become very urgent. The recovery of NPAs and strengthening of internal controls, management audit, effective inspections and audits of all operational activities, and forensic audits may add costs to the already burdened banks but there is no escape and must be activated in a mission mode in order to regain the public confidence.
  9. Skill building and succession planning:- Advance training in specialized fields and skill upgrading of staff is need of the hour. Gone are the days when banking was every body’s job and bankers used to be a jack of all trades but masters of none. Now with a lot of advancement in the banking field, new innovative ideas are the order of the day in order to beat the competition and the challenges. Value addition to banking products with fine packing and branding which may suit the tastes, requirements, and choices of the customers have to be tailored in order to stay ahead in the competitive atmosphere. A robust and sustainable succession planning must be done at least for the next two decades and which may be reviewed and upgraded periodically.
  10. Setting up an advisory for the clients and brand building:- The Brand building is a long and continuous process. Successful leaders have built successful Brands which have resulted in heavy returns for their businesses. A product can be easily copied by anyone but a brand can’t be copied. Banks need to attract more clients by providing them with the products suitable to their requirements and choice. The markets and businesses now are not protected against competition from across the international borders especially after the signing of the world trade agreement. Now only the strongest,  the fittest, and those who can afford to adopt a change can survive; others are bound to vanish from the scene. Under such circumstances, banks are bound to suffer losses as their products are exposed to greater risks. This is one of the reasons for a spurt in the level of NPAs of banks in the last few years.                                                                                                                                           THIS IS A BIG CHALLENGE FOR THE BANKS AND FOR MEETING THE SAME BANKS NEED TO PROVIDE EXPERT ADVICE TO THEIR CLIENTS AND FIND SOLUTIONS FOR THEIR SURVIVAL. BANKS NEED TO ESTABLISH ADVISORY WITH EXPERTS WHO COULD PROVIDE SOLUTIONS TO THEIR CLIENTS FOR SURVIVAL. The upcoming of big Malls, online shopping through big international giants like AMAZON, ALIBABA, FLIPKART, SNAPDEAL etc have adversely affected the retail market in the country. In order to compete with these big sharks, the retailers have to come up with a matching model of business in the market. Banks have to come up with new innovative models for their clients in their own interests.
  11. Retaining the existing clients:- In view of the tough competition in the sector, banks have a big challenge ahead in retaining the existing clients not speak of adding more to their kitty. The clients have various options and opportunities available to them, so the banks need to ensure that none of the good clients slips out of their grip. Gone are the days when there used to be a customer loyalty and attachment with their banks. Now the customers change banks more often than their vehicles. A regular contact with the customer/ holding customer meets by higher executives whose words and decisions matter need to be organized in order to create more confidence and bonding with the customers. Good leaders are good listeners and people love to be listened to. Promoting and advertising of banks products is very necessary. One of the cheapest ways to promote and advertise banks products is to feed their salient features as caller tunes into thousands of the mobile phones of staff members. In addition to products, the caller tune can be made to contain a mission or a brand promoting song. 

Good leaders have the tact and the wisdom to convert their weaknesses into their strengths and challenges into opportunities. All that is required is a strong will, dedication, a deep sense of belonging to the institution, and a good team of dedicated staff.

OPPORTUNITIES:- While there are big challenges, there exist equal opportunities also. Some of the opportunities available to banks are…..

  1. Big market and big population:- The size of the market is fast increasing and in order to meet the requirements of the second largest population of the world, which is increasing by 20 million souls every year, ample opportunities are becoming available  to the banks to finance in all sectors, may it be agriculture, horticulture and allied, industry and manufacturing, trade and services, infrastructure, mining, shipping, transport, power, tourism and so on. In addition to this, banks have the opportunities to go for business beyond the international boundaries as the entire world is open to them for doing business. All that is required is strength and will.
  2.  The country still not fully developed:- The country is still not fully developed and there is a lot of scope for investment in almost all sectors of the economy. Still, we are calling for FDI in various fields for economic development. Banks need to enlarge their capital and size to substitute the FDI. There is no dearth of opportunities, banks need to redraw their working models suiting the economic activity and matching the foreign banks.
  3.  Advisory services:- With the advent of an open economy, there is a need to change business models in almost all sectors. Banks can provide services for providing training to clients in order to take up new business models and earn some fees and attract customers. This is already being done on a small scale by banks and govt. like some awareness programs for artisans, farmers, and agriculturists etc. EDP(entrepreneurship development programs) are conducted by EDI in the country where banks can participate and attract young budding entrepreneurs.

Money blocked in NPAs and loss assets:- There is a lot of money blocked in NPAs and loss assets on account of money lost in frauds and for which banks have already made provisions out of their incomes. These block of funds are in a way HARD AND A LITTLE TOUGH MINES of reserves for the banks. Any recovery from these heads adds to the income and overall health of the banks. These reserves must be tapped by effective recovery techniques (Management of NPAs -Some recovery techniques.) and maximum effort needs to be made to address further slippage to this category. (Bank’s NPAs. Causes and Remedies.)

Rod and reward:- Banks must not spare the rod wherever required and should not become a miser while promoting the talent and rewarding the performers.

Challenges make one more strong. Challenges provide an opportunity to face hard situations and increase one’s self-confidence. They provide an opportunity to prove your will and strength. A nation becomes strong only when it faces challenges and so are the banks. Banks have to take these challenges in the right perspective which ultimately will change their fate.

HOW AND WHERE TO INVEST SAVINGS

THE YIELD OR THE RETURN ON INVESTMENT IS DIRECTLY PROPORTIONAL TO THE RISK YOU TAKE. SO YOU SHOULD TAKE A WELL CALCULATED RISK AND IT DEPENDS UPON YOUR OWN JUDGEMENT AS TO HOW MUCH RISK YOU ARE PREPARED TO TAKE. PLEASE AVOID TAKING HIGH RISKS UNLESS YOU ATTAIN EXPERTISE IN MARKET FORCES

Once you are in the habit of saving, you should start investing in different schemes of different financial institutions. Four things are to be taken into consideration before deciding to park your saved funds in different schemes. Financial institutions/mutual fund companies have all types of tailor-made schemes for different maturities and you can choose those which suit your requirements. The issues to be considered before investment are:-

  • Safety of your funds.
  • The risk involved or quantum of risk you are prepared to take for your investment.
  • The rate of growth of your invested funds.
  • The maturity period of scheme you intend to invest in.

You may have bulk funds available or a regular monthly salary/income. Options available for investment of bulk funds in order of safety and risk are:

  • Sovereign Gold bonds.
  • Real estate.
  • Banks term deposits.
  • Debt linked instruments of the reputed mutual fund company.
  • Equity-linked instruments of the reputed mutual fund company.

For savings out of regular monthly salary/income, the available options are:

  • Saving bank account of banks
  • Recurring deposit account of banks
  • Debt linked SIP(Systematic investment plan) of the reputed mutual fund company.
  • Equity-linked SIP of the reputed mutual fund company.

THE GOLDEN RULE OF INVESTMENT

THE YIELD OR THE RETURN ON INVESTMENT IS DIRECTLY PROPORTIONAL TO THE RISK YOU TAKE. SO YOU SHOULD TAKE A WELL CALCULATED RISK AND IT DEPENDS UPON YOUR OWN JUDGEMENT AS TO HOW MUCH RISK YOU ARE PREPARED TO TAKE. PLEASE AVOID TAKING HIGH RISKS UNLESS YOU ATTAIN EXPERTISE IN MARKET FORCES.

Then there are high-risk options such as Equity market. It is always advisable to avoid investment in equity market directly unless you fully understand the nitty-gritty of the Equity market as well as the movement of local as well as world economies and political climates. Investment in the equity market is advised through equity-linked mutual fund schemes.

Ponzi schemes promising very high returns don’t have any sound base and support systems and people have lost their fortunes in such schemes. Don’t get lured by such schemes.

RECENTLY BITCOINS HAVE COME INTO GLOBAL MARKET WHERE PEOPLE HAVE ALTHOUGH MADE EXTORBITANT PROFITS YET IT IS HIGHLY RISKY TO INVEST IN BITCOINS BECAUSE THEY DO NOT HAVE ANY BASE. NO GOVT. OF ANY COUNTRY HAS RECOGNISED BITCOIN AS A SOUND INVESTMENT.
IT IS CRYPTOCURRENCY HAVING NO SUPPORT. IT’S BUBBLE CAN BURST ANY TIME RESULTING IN VERY HEAVY LOSSES, SO DONT BE LURED BY SUCH RISKY INVESTMENTS.

60% of your net monthly saving is advised to be invested in reputed mutual fund companies in the ratio of 50% in debt and 50% in equity-linked SIP or Recurring deposit scheme of banks for a period of 15 years. 40% of net saving every month be kept in saving bank account. Amount so accumulated in this account be converted into term deposit of 50 thousand or one lac or 5 lac as the case may be for the period of your of your choice. Keep on renewing the term deposits on due dates or invest in any high yielding scheme of financial institutions. You should not keep all eggs in one basket.

And above all, there is an investment which we should never forget to make whenever we receive an income or salary and that investment is CHARITY for a good cause. The amount of investment/donation depends upon your own will; no bindings. However, some religions have mandated a percentage of income as charity, like Sikhism, which advice to donate 10% of your income in the charity called DASWANT and in Islam the limit is 2.5% called ZAQAAT. Charity purifies your income provided it is out of honest means, and purely organic in nature. Any income out of dishonest means, corruption, cheating or any illegal means is inorganic in nature which may infect your organic and healthy income. No charity of whatsoever amount out of such income can purify your wealth. No one can get peace of mind in life out of such income and it always leads to problems and problems only.
Slowly and steadily you will accumulate enough wealth to take care of your future needs.

Till you are in active service/earning stage, you should continue parking your savings in growth schemes and meet your social and moral responsibilities. And once you retire, better keep saved funds in monthly yielding schemes of financial institutions to augment your monthly income and live a peaceful life with financial independence.