To B or not to B, and if we B then how to B – this is the million dollar question we need to ask banks before they setup shop in India.

Disclaimer: this article is purely my personal opinion and the thoughts expressed are personal and do not express the thoughts or the opinions of my company or any other employees of my company.

In other words the title can be read as to build a new bank or not to build a new bank and if we were to build a new bank then how do we build the new bank. Hope we don’t make the same mistakes again.

 Banking In India

1. New licenses

26 companies applied for banking licenses as per the following list and one of them has withdrawn. This has an excellent mix of extremely good corporates and some socially responsible companies who have made a mark through microfinance. Then there is the post office who have placed their investments to reach the far reaching corners of the country.

 http://www.firstpost.com/business/full-list-these-26-companies-have-applied-for-new-banking-licences-920031.html

 To a certain extent awarding licences to these companies can be likened to awarding a country the opportunity to host the Olympics. The paradox in this is that many a times the country that is bidding is actually expecting their economy and infrastructure to improve and the Olympic committee amongst other criteria are looking for sound infrastructure among these countries before awarding the opportunity to host!

2.   New banks after 1993 and what has happened

Once upon a time, not so very long ago, there were some banks in India, who started operations after 1993 and they are sadly in the obituary column of successfully lived and dead banks. Some of the banks are Centurion Bank, Times Bank and Global Trust Bank. They started with a bank(g). They had all the nice customers, who by the way had other bank accounts from other banks as well, but shopped around in these new banks because of excellent customer service, but one can argue that anything new could offer excellent customer service because they are relatively free (read less volume). The marketing was really forceful and they did have fantastic service compared to then established banks, they also had ex-bankers from the well established banks who brought their banking relationships with them.

 3.   Top banks in the world and their assets

 If we look at the top 35 banks in the world in terms of their assets, we have 6 banks from China, and India is a whopping 0, which coincidentally we claim to be the number we invented, hopefully for more glorified purposes than this.

Country

Number of top banks

Canada 2

China 6

France 4

Germany 2

Italy 2

Japan 4

Netherlands 2

Spain 2

Sweden 1

Switzerland 2

UK 4

USA 4

Grand Total

35

 Source: http://www.relbanks.com/worlds-top-banks/assets

 Coincidentally some of these banks have a presence in India as what we popularly call foreign banks and we need to understand if they are helping the cause of India getting to the top of the above list.

 4. Wastage

 What kind of wastage we leave behind when we have constructed a fully functional bank and then sell them to someone else.

 a.)   Marketing material and all the stationary printed in the name of the former bank – maybe they could use letterheads for teaching mathematics to their employees’ children.

b.)   The entire infrastructure like VSAT terminals, computer software and application programs – even if the bank were to continue using the same infrastructure, you could confidentially assume that the new bank will have a completely different structure compared to that of the other bank.

c.)   Unreal estate – Considering I have had my bank account with my present bank for more than 10 years and have not gone there even once, you could argue why you would need to have so many branches of the bank. Oh yes, you can argue that it would make cash deposit safer, and oh yes, why are you accepting cash, probably because you don’t keep track of who is giving the cash – sniffing something?

 5. Corporate and Social responsibility

 Many banks have it as a Mandate to have Corporate and Social Responsibility. The banker can add real value if they are able to empower the real needy to be able to build a business and empower them to be immensely successful. Mohammed Yunus and the Grameen foundation won the Nobel peace prize for this initiative. The Grameen model became a model that can be emulated across the world. This is a model that is prone to a lot of misinterpretation and regulatory issues. This also ensures that we have been able to eliminate expensive interest rates and lend money at a very cheap interest rate. When we mandated all the banks to do priority sector lending in the rural areas, we didn’t define who would constitute the priority sector and who would be the ultimate beneficiaries. Maybe we did define but did we religiously govern the funds and their usage? Which priority sector did it reach? The problem is that priority is a variable and every bank is able to define their priorities! We will need to ensure that we have norms to ensure that  we are able to empower the women entrepreneur to social lending schemes and mandate it to an extent where banking license depends on real life case studies on success of doing this to eradicate poverty by empowerment.

the forthcoming articles expect to cover topics related to new banks around the subject of employee productivity and infrastructure investments.