The Hindu Business Line : Whose banks are these anyway?

Reforms and competition have done wonders to the health of Indian banks. But Indian banking cannot wish away the fact that many people do not have access to bank accounts. It is essential, therefore, that the client base be given pre-eminence while ranking banks.

THE financial press cannot front-page beauty pageants. So, it has discovered the "best lists". After best companies, best employers, best mutual funds, et al it is now the turn of banks. Different periodicals have used different parameters for judgment with varying results.

The parameters employed ranged from the simple market cap to net interest income. The scoring was supposed to take into account the size, efficiency of operations, quality of earnings, adequacy of capital and asset quality. As lists go, the ranking of banks also packed a few surprises — the country's largest bank did not figure in the Top 10 list of one magazine.

Without quarrelling over the merits of the parameters used for ranking, there seem to be two large woods which have been missed for the trees! Banks touch the lives the common man in many ways by providing basic financial services.

That banks provide essential service was a settled fact even before the financial sector reforms began. Is it not then amazing that the parameters used for ranking did not include the two major rationales for a bank's existence — customers and service? In ranking the performance of a bank is it not necessary that one asks, "How many people do you serve and how well do you do it?"

The scorer may respond to this argument saying that unless service is good the bank will not attract customers and, hence, the ratios will be bad. But for reasons we shall see shortly it does not work that way all the time.

Reforms and competition have done wonders to the health of Indian banks. They have also ushered in changes whose sweep and magnitude have been far reaching. sBut the changing face of Indian banking cannot wish away the fact that many people do not have access to bank accounts. It is essential, therefore, that the client base be given pre-eminence while ranking banks in the Indian context. Hence, the surprise over the largest bank of the country not making it to the Top 10 of a recent ranking. This bank, as with many other older banks, must be serving people in remote corners of the country where branches may have a large number of customers who may not be adding very substantially to the business.

Contrast this with the statement attributed to the CEO designate of an emerging star on the banking firmament about his bank being focussed on a single segment — the mass affluent or households with annual incomes of over Rs 4.5 lakh. It is estimated that there are about nine million such households in India of which seven million are believed to be in the metros.

This is a juicy morsel of business, which will automatically translate into a dream bottomline. Two years down the line the bank will be the delight of the scorer with his cost to income and other analytical ratios. But do the figures capture the number of customers served?

What about the remaining 999.1 million Indians beyond the metros? How long do they need to wait till one of the top banks considers them to be worth wooing? Another move gaining popularity among the newer banks is the drive to weed out "unproductive" accounts. How will the accounts being held by my father and yours for drawing their monthly pensions be classified? Unproductive? Unwanted?

These are disturbing questions for which the current ranking parameters do not have ready answers. Indian banking unwittingly seems to be creating a class structure among its customers and appears to be promoting, albeit unintentionally, what can only be called enclave banking.

Enclaves of customers are being created and catered to who are more equal than the rest of the Indians having bank accounts. The submission, therefore, is that unless client base is reckoned the ratios per se cannot capture the true value of a public institution like a bank.

Then there is the question of service. Unlike the client base, which is a numerical value here, this is in the uncharted waters of subjectivity. What constitutes good service is a tricky and an elusive question. But certainly it should not be difficult to decide as to what does not constitute good service. Simply stated, when you do not get what you see, it is definitely not good service. To sample a few real life instances in banking:

A leaflet promoting a credit card which quotes a lower per monthly interest in the front page only to tuck away the sinister per annum rate in one of corners of the inside pages

Announcing rewards programmes for customers with asterisks that softly proclaim that "conditions apply" without stating what they are.

Offering rock bottom interest rates to wean customers away from a rival without informing the client that you will be charging Rs 400-500 per day of delayed submission of monthly stock statement

Charging for non-maintenance of a minimum balance in your savings account, which you were never informed of in the first place.

Having to proclaim that there are "no hidden costs" in all promotional material (Pray since when did costs start hiding in the first place?)

Examples abound but in the final analysis these cannot pass for evidence of good service. Cannons of good service should go beyond good technology and great ambience and help the customers about the choices they make. Selling a credit card or a loan product to a customer who is on the verge of an obvious debt trap is no more responsible than the statutory warning on a pack of cigarettes.

As a perceptive quote from political scientist Benajmin R. Barber from his book Jihad Vs McWorld sums it up: "Markets are not designed to do the things democratic communities can do. They allow us as consumers to tell producers what we want, but prevent us from speaking about the social consequences of our choices. As a consumer, I may want a car that goes 130 mph, but as a citizen I may vote for a reasonable speed limit that will conserve gasoline and secure safe streets."

To this he goes on to add the liking for violence-soaked Hollywood flicks contrasted by the urge for gun control. He could have well added to his list credit cards and consumer loans that customers can at times do without.

So the friendly scorer rating the banks next time should pause to think of service from this angle as well as his number simply do not reflect these ethical values. But are these questions relevant? Do we need to ask them at all? The strong guess is that we do need to ask these questions. We are already seeing the trend towards bigger banks imitating the new kids on the block in a desperate need to "belong" and earn a favourable opinion or rating from the financial press.

This could be unhealthy for banks, new or old, big or small, handle your money and mine — hard earned and squirreled away as a hedge against increasingly change driven and turbulent times. It is, therefore, that the question must be asked: "Whose banks are these anyway?"

(The author is Senior Manager, Syndicate Bank, Bangalore.)