Point of view : Dynamic banking needs positive change

Banks' income can be both passive and active. There is no clear-cut division for even under the passive category there are active components and vice-versa. What is broadly understood to be passive income is the income from routine banking functions which are so familiar that they are like the monotonous moving functions in the conveyor belt process.

The only broad based avenue of investment in our country is the Time deposit accounts of the Banks. On the reverse side is the Advance facilities given under the limited forms of loans, overdrafts, letters of credit, bills, accommodation etc. When it comes to deposits, Banks pay a pittance as interest that too on time deposits at their own terms like periodicity, variations etc. No interest is paid on the bulk of the moving deposits-Current account deposits as in developed countries. Interest with a vengeance-Spread- is charged on the advances.

This has certain ridiculous elements in it. Overdraft is meant for the tried and tested, longstanding good customers but this attracts the highest rate. Take gold not gilt edged securities but for gold itself Banks charge a rate equal or higher than for paper securities. Why ? Reasons advanced are cost of funds and insurance against all risks etc.

Whatever it is the bulk of the Bank's income is generated through these sources where the banking skills are limited to cautious intake where customers are concerned and little bit of fitting and adjusting in the case of advances formulary approach is more common like the old lazy teacher who rarely updates his notes but continues with the yellowed pages year in and year out.

Bank's income is composed of both deposit based income as well as fee based income. As it is our Banks rely more on the former than the latter. In developed countries it is as much or more than 60 to 70% of their earnings.

Even in the former there is denial of the legitimate dues by not including demand deposits fully and time deposits partially by imposing unilaterally beneficial stipulations weighted in favour of the Banks.

There is a desire to attract deposits but is discouraged in practice by various means. Suffice it is to stop with that observation for the intention is to focus on the comparative importance given to the 2 types of incomes.

If the fee based income increases there is a possibility of reducing the dependence on demand based income initially but expanding that too by encouraging the much needed banking habit and their own deposit based income subsequently. The immediate need is to increase the fee based income.

A cursory analysis would show that fee based income is based on expert advice and guidance to customers. It is not gratuitous service therefore it requires manifestly reasonable skills. To extend that Banks have to have a team of knowledgeable personnel well versed in the areas they would venture to advise and guide and generate the fees. Investors in shares rely more on the share-market brokers.

This is an area banks can enter into provided they throw up the necessary skilled players among them. Players are there but they stick to their courtyard. There is enough room to prepare projects for entrepreneurs.

Prospective investors are hunting for meaningful preparations of viable projects. Banks should train their staff to deviate from their monotonous routine functions mostly automated now but nevertheless preformed by the staff as standby personnel.

Non-entry into new fields is not due to lack of talent. Average initial level bank employee who has entered through the portals is as much the cream or more as those who enter the campuses even to the coveted faculties.

Banks have thrown successful gemologists, hoteliers, marketers, importers, exporters, realtors, lessors, car dealers, to name a few from among the staff. These experts have proved themselves elsewhere and not in the bank, either while working in the bank or after leaving it.

What is lacking is the boldness on the part of the heads and shoulders to give the opportunity to those who are willing and capable of doing such novel functions if given half the chance. Most of those at the top may not be professionals.

They may be overcautious followers of the beaten track. They may have come up because of the number of years and the absence of adverse records in their career path. That is not enough. Like a really good doctor, teacher or for that matter any professional, bankers too have to update their knowledge.

Even if they have entered with the minimum entry point qualification the profession expects them to gather more moss by way of work knowledge, buttressed by professional honing, manifesting in professional qualifications. They can concentrate on lateral qualifications in allied fields.

Fields are many it can range from investment, insurance, information technology, and so on. Existing campus course contents and even those of the professional institutions have to undergo change to face the new challenges.

Bankers have a unique place in that they have access to the means of helping anyone to establish in a trade, profession or even in their existing vocation. It is time the bankers shed their complacency arising from the entrenched profitable positions. They have to open their eyes and look around beyond their old ways.

The spread is kept high and it ensures high profits and helps to hide many a sin perpetrated by the miscreants within and colluding of course with those of their like from without. In spite of the inefficiency as manifested in the high percentage of non-performing advances banks show high profits.

If the non-performing advances are kept within allowable limits, if not eliminated, banks can show even higher profits. Way out is -not the creation of another institution and saddling it with those debts which have to be recovered from the defaulters and or the decision makers for their unprofessional conduct to say the least.

If non performing advances are kept within allowable limits and banks increase their fee based income the dire dependence on the "Spread" to keep their profits could be eliminated and even the depositors as well as the borrowers could be given a fair deal and yet earn substantial profits, the acceptable motive for their activities.

The legitimate charges for advances are high enough ranging from the interest, stationery, legal, inspection charges to name a few. There is no single charge additive to the loan. It is composed of the above and more. It has descended to the level of the cinema ticket of the recent past.

Which was more like a grocery bill though we buy it for 2 hour film show only. If in addition to these unending charges if the untalked of Illegitimate ones are added the plight of the borrowers as defaulters could be discerned.

Banks have to regain their prestigious position as institutions sought after by the customers for their confidentiality, dependability, and some thing the country can "Bank" on.

Banks are both forerunners to a country's economic development and at the same time an index to their development. Banks thus play a pivotal role. They have to continue to exist and grow as in gymnastic parlance it is an arduous task of tight rope walking.

They have to pay a higher rate of interest and other incentives to attract deposits-the capital base of a country i.e. in capital formation. On the flip side there is the advances the much needed investment capital. This has to be directed at lesser cost to the appropriate areas.

These two cannot be done successfully if the banks continue to obsessively hold on to the spread alone on the deposit based income.

It has to ensure its continuity in business as well as discharging its expected role by exploring other sources of income. The accepted and practical source is the fee based income.

Ramalingam Suntharalingam (BA Econ. (Cey) FCIB (London) MA Econ) Urumpirai West