why run after a mirage fellow bankers

 Fellow Bankers: Why this mad run after a mirage?

In the last fortnight, Reserve Bank of India (RBI/Regulator) imposed hefty fines on two major private banks for non-regulatory compliance and also directed a large public sector bank (PSB) to suspend further onboarding of new/existing customers onto the latter's 'mobile app' with immediate effect. According to RBI, while the fines on the major private banks are for violations/non-compliance in respect of outsourcing service provider/engagement of recovery agents, levy of charges in foreclosure of loans and non compliance of statutory and other restrictions in sanction of loans and advances, the direction to the PSB to stop onboarding further customers was issued in the light of 'material supervisory concerns' observed in the manner in which the customers were added in the bank's app. The action in respect of the private banks can be tagged to deficiencies in corporate governance in the said banks and its branches, which issue crops up time and again during RBI inspections/off-site surveillance.  However, the 'material supervisory concerns' in the use of 'mobile app' appear to be more serious than what meets the naked eye, if the reports that appear in the media along with purported copies of the said bank's letters to some of its branches are true.

I. Questions Raised on the safety of the app: The abuse of the mobile app (app) by the staff of the said PSB raises a lot of issues that needs to be sorted out by the bank, before they can apply to RBI for restoration of the app for further onboarding.

1. The regulator said further onboarding is subject to the strengthening of related processes by the bank.  Strengthening cannot be confined to the app alone; the core banking system (CBS) also needs strengthening. The reports in the media, supported by the copies of correspondence of the bank with its branches, suggests that mobile numbers not furnished by the customers were tagged into the customer profiles in the core banking accounts of customers so as to register, activate and de-register the said accounts into the 'mobile app'. An internet banking facility, whether for view/transact purpose, is given only in respect of accounts in which the mobile numbers were registered. So, the said accounts, prior to registration of mobile numbers that did not belong to the customers, had no internet banking facility. So the change/recording of mobile number afresh in the CBS amounts to material amendment and should have been subjected to an audit trail of 'maker/checker' concept. Necessary support documents, like documents the bank obtain for ID and address proof, should have been collected for the purpose.  Whether this was in practice in the said bank?

2. The word 'seamless transfer' quite often used by the banks or the regulator indicate that data is transferred among two systems/software at a much faster speed, since manual intervention is not involved. There is an implied seamless transfer between the CBS and the mobile app developed for onboarding of new/existing customers. Should it not have been mandatory that the data, which were transferred from CBS to the app seamlessly, were subjected to audit trails, when they were entered in the CBS at the time opening/modifications were made?

3. Any one, who had opted for the app in the registered mobile number, will be able to transact without the use of user id or password (only for the first time, this may be needed), by generating a 4/6 letter PIN. This of course gives the customer more convenience as he can carry out his transactions faster. But speed cannot come at the cost of safety.  When the app was developed, whether the risk department of the bank satisfied itself that the convenience made available, like operating with the PIN only, factored the risk /safety valves needed to protect the customer?

4. In view of the risks associated with enabling the mobile app to transact by use of mobile number alone, whether RBI/ Banks should make it mandatory that the mobile number to be entered in an account/ mobile app. should be the one that is registered for 'Aadhaar' purposes (as the OTP will go to the mobile number registered with Aadhaar).

5. RBI placed restrictions on incentives/commissions to individual staff for achievements in NPA recovery, bancassurance sales, loan sanctions, digital banking initiatives etc. on the ground that they are against BR act. Banks are now adopting the incentives under 'reward to teams'. Whether the regulator need to look into some of the methods adopted by banks in encouraging sales in 'campaign mode'

II. Intent of abuse: The modus operandi indicate that more than malafide intentions, the staff were carried away/put into pressure more due to targets fixed, campaigns modes adopted, the team rewards that accompanied the said campaigns, etc.  to seed mobile numbers on their own into thousands of customer accounts, without their consent. It is quite possible that some of the staff suspended by the said bank might have been lured into wrong doing out of their anxiety to show a better picture of themselves before superiors (exposing customers in the process).

This is not the first time and will not be the last time again that the business strategies adopted by some of the commercial banks induce/compel staff to adopt dubious methods to achieve the targeted numbers. Let us look at a few examples in the past.

a. Inflating deposits and advances for a day to boost business figures to budgeted levels: Requesting the customer/debiting the unavailed limits for a day on 31st March and crediting the amount into the customers' current account was a  common phenomenon even prior to computerization days.

b. Evergreening of loans and advances: This is also a practice that was prevalent even during manual (pre CBS) days. Some branches had the habit of using the money received for renewal of one agriculture account to renew the entire agriculture crop loan accounts in the branch. Divergence in NPAs/Provisions in the loans subjected to annual statutory audit and RBI inspection were not uncommon and had to be disclosed when the divergence exceeded a percentage of total NPAs/provisions disclosed in the annual reports concerned. Quality Asset Review in 2016 revealed that the staff/few branches/regions that resorted to ever greening had the implied backing of the top management. RBI had to issue a circular on 14th Sep 2020 to the banks to have an appropriate IT system in place for identification of NPAs, reversal of unrecovered interest, classification of NPAs in the time buckets required for provisions etc. as the regulator found the banks resorting to manual identification of NPA and were over-riding the system generated asset classification by manual intervention in a routine manner. Only recently, RBI Governor spoke of instances of innovative methods adopted by a few banks to circumvent the NPA and provision norms during his interaction with independent directors of the banks.'

c. Misselling of Bancassurance Products: The fact that the loan customers contribute more towards growth of bancassurance products, has repeatedly brought into focus the concept of 'mis-selling'. There were a few instances in some banks where it was found that one time debited loan accounts (including agriculture advances) were used for achieving bancassurance targets. Loans are sanctioned as a matter of routine in some banks for paying the premium to cover the life of a borrower, who availed housing finance, so as to cover the outstanding in the loan account, in the unfortunate event of an eventuality. More than the risk mitigant to the bank and the borrower, whether the resultant commission from the premium plays a major role in the staff influencing the borrower to avail a loan for premium payment, is a matter of debate.

Innovative/dubious methods adopted to achieve targets in digital banking space is now added to the above known list. While these cannot be totally eliminated, smaller the number, the systemic risk to the bank concerned is limited to that extent.

While requesting my fellow bankers to keep the larger picture viz. the organization in mind, when carrying out strategies to achieve targets, I give below a few instances to demonstrate that achievement of targets is not an end in itself and one can survive without that also.

i. Temptation can after all be overcome by the state of mind: When I joined the bank, I was trained in cash counting, sorting, finding out genuineness, etc. by a head cashier of a currency chest branch. (Incidentally he rose from the ranks to reach that position). I remember his words: "Sir, when you enter into the cash room, please imagine that you are playing the game of Trade. Treat the different currencies as mere papers and the homes you buy as tools. With that in mind, the value of currencies will vanish from your mind. Your job is to receive/pay the denominated papers and tally at the end of the day". So state of mind is the most important factor to avoid any temptation to own something, which do not belong to us rightfully.

ii. Not achieving target is not a crime or sin: I was posted to a branch saddled with NPAs after my promotion and I was asked to keep recovery as the top priority. After four months, business review of a few major branches was held in the chambers of CGM. Among the nine participants, I was the only one who had negative growth in every parameter (deposits/advances/recovery/income). When the meeting got going, I found the achievers were confronted, as they did not come prepared with facts and figures. So, when my turn came, I said "I have nothing to say except that the branch is reeling under negative growth; but if permitted, I am willing to share the initiatives, which may bear fruit in the future".  I was permitted and appreciated for the efforts, since the explanation given was based on facts. The PS to CGM remarked jokingly "You were the only one with negative growth, but made every one to feel as if that is not your fault" (I did achieve the targets in due course)

iii. Dissent is acceptable: My friend, who retired recently, was on a foreign assignment with a PSB. He was not comfortable with a credit proposal for a large amount, which was found acceptable by the other credit committee members. Since he did not want him to be an embarrassment, suggested to the CEO that the proposal may be recommended for sanction during his period of leave, starting the following week.  CEO asked him to present his objections and the proposal was shelved.

iv. Non-selection for promotion may be 'blessing in disguise': Again one of my friends, appeared for selection of officers to be sent for foreign assignment. He met the then CGM of the said PSB (prior to attending the interview), who said " If you are selected, it is good. If you are not selected, still you are good". He did not get selected that year. But he got selected as an India Based Officer by the same bank after a couple of years. He went on to become the Managing Director of a PSB. So, not getting selected is not the end in itself. 

Life is full of opportunities and the glories need not be what we perceive as the ones to be achieved today.

Regards

V.Viswanathan

29th October 2023.