Saturday, August 19, 2017

Kickstarter and Crowdfunding


When we study growth of civilization over the last several centuries, we come across contributions of several people in the form of inventions. These inventions rendered difficult tasks simple, provided resources for further research and development, and thereby enriched human lives and surroundings. There are indeed big names remembered for their contributions. They have got their right of place in the annals of chapters of development. Yet there are thousands of others who toiled as much as the famous ones, but never got the recognitions they richly deserved. Then there are innumerable unsung heroes whose names never came out, but their contributions are used in many applications and inventions. What we have today is a sum total of the contributions of all three such groups.

It is possible that many contributions lapsed before taking a concrete shape which resulted in great loss to mankind. They might have subsequently come in some other shape or form. But the loss of time would have been a significant factor. This was all the more true of times when documentation and communication had not yet developed to the desired level. Nor there was an efficient system of publishing and recording rights of individual inventors. There could have been instances when the inventors themselves did not know the value of their own contributions. Thanks to the present day technological advancements, there are abundant opportunities for ideas to germinate, take shape and reach their logical conclusions. The pace of growth is now in geometric progression due to these factors.

When we analyze the reasons for many ideas and inventions to lapse before reaching an ultimate level, three factors stand out. The first was failure of recognition of the ideas by the ones who had them in their minds and initial actions. The ideas or actions were forgotten before their importance was noticed to the fullest extent. Then there were others that were identified by their owners, but did not receive support from the surroundings. The concepts could not sustain due to lack of encouragement from concerned authorities or society at large. License and permits, and clearance from governments did not come speedily enough as the promoters did not have the requisite muscle or money power. The third reason is due to lack of resources to expand the ideas and give a final shape to the products. Among all the resources required, financial resources is the most important. Many brilliant ideas never took final shape for want of funds for their development.
*****

Gopalaswamy Doraiswamy Naidu (1893 -1974) was an engineer and inventor and is often referred as Edison of India. Popularly known as G D Naidu, he made invaluable contributions to various fields of technology. A self-taught man, he was a genius in the real sense of the word. His life story is a very interesting study in the background of the events in the country during his lifetime. His inventions are visible in many areas; industrial, electrical, mechanical, agricultural and automobile engineering. He never had education beyond primary level, but rose to the position of principal of a polytechnic! He was an outstanding example of achievements of a man without formal education.


G D Naidu did not like to go to school. He was a very mischievous boy at school and was throwing sand and stones at teachers, and sent out of school. His education ended there. He worked as a waiter in a hotel in Coimbatore and saved money from the meagre earnings. From the funds so saved, he bought a motorcycle, which was very rare in those days. Picture of the motorcycle is given here. He dismantled and assembled it repeatedly and became a mechanic. From the earnings as a mechanic, he started Universal Motor Services (UMS), purchased a bus and ran it between Pollachi and Palani. In a few years he had one of the most efficient fleet of buses for public transport. He started National Electric Works (NEW) and brought the first electric motor in India. 

Naidu did research in the field of agriculture as well and identified new varieties of cotton, maize and papaya. He started production of cheap radio and television sets under the brand UMS. I have seen UMS radio and TV in my uncle's house. He built cheap cars but could not go for mass production due to not getting license from the government. It is said that he started construction of a house at 6 AM in the morning and finished by 5 PM. The house was ready in 11 hours! He started Arthur Hope Polytechnic (named after the then Governor of Madras) and became its principal. The polytechnic is now known as GCT (Government College of Technology) in Coimbatore. His inventions and prototypes are kept in the G D Naidu museum in Avinashi Road, Coimbatore. The museum is now celebrating its 50th year.
*****

The concept of Venture Capital has taken off during the last few decades. During the first half of 20th century, financing new ideas was an exclusive domain of a few wealthy families. The Rockefellers was one such family that encouraged funding new ventures. After World War II, efforts for institutional financing framework for ventures which had high growth potential but highly risky, gathered momentum. During the last three decades Venture Capital Funds have come up very well providing a robust structure for finance at different levels to upcoming business ideas and plans. Today Venture Capital funding is available in millions of dollars. Many ventures thus financed have become success stories and encouraged both entrepreneurs as well as VC funds in their respective pursuits.  

For ideas to germinate and reach VC funds is still a difficult task. Big ventures are able to reach these required levels. What about very small projects which do not measure up to the standards expected by VC funds? There are innumerable start-ups which do not need big finances, but resources of the promoters are not sufficient to fund them. At the other end of the spectrum are people who are prepared to invest small amounts to back ideas that interest them. Thus we have a scenario in which ideas requiring smaller funding stand on one side whereas a large number of people (the crowd) are ready on the other side to stake small amounts on such ventures. This type of situations have led to an era of Kickstarting and Crowdfunding. There are intermediaries that bring together the two groups so that the ventures can take off. 

Kickstarter is an American Public Benefit Corporation based in Brooklyn, New York. The goal is to "Help bring creative projects to Life". We old timers are familiar with kick-starters, a pedal used to start a machine by kicking it. Most vehicles, especially motorcycles, had it by kicking which the vehicle's engine came to life. We have seen Motors (buses were thus called then) in our childhood which had an iron rod used for starting its engine until modren touch start engines arrived. Crowdfunding is an activity or process of raising money from a large number of people, typically through a website, for small business projects. Kickstarter, launched in 2009, has so far generated more than 2 billion US Dollars from over 10 million backers to fund over 2,60,000 creative projects.

The ventures cover a variety of ideas like stage shows, comics, films, journalism, video games, technology and food-related ideas. People with business ideas place their offers on the website giving details of their plans and a minimum funding target before a fixed deadline date. Funds are collected only after the target amount is subscribed by the crowd. If the target is not reached, the project does not take off. Anybody anywhere in the world can contribute to the projects. The website gets a fee from all successful projects and payment processor also charges a fee for the services rendered. The website has no role after funding process is completed. Investors are offered the products or dividends if the project succeeds and it is between the promoters and the crowd. It is said that people from more than 20 countries are now actively participating in crowdfunding. There have been many success stories as well as failures. Each investor invests a small amount and does not mind taking the risk for that amount. They may get good returns as well if the venture succeeds. It is said that there are ventures that have raised more than a million US Dollars in 24 hours!

Crowdfunding is catching up and there are many websites providing similar services now. This is another diversification of fundraising and utilizing activities today.
*****

G D Naidu suffered from licensing and permit raj. He struggled due to lack of support from the surroundings. He was choked due to shortage of funding opportunities. Things have changed in the present times. Make in India has said goodbye to License and Permit raj. There is a large crowd around the world ready to invest in new ideas. Environment is pregnant with new ideas and opportunities to promote them in the light of success stories of modern entrepreneurship. Times have indeed changed the very look of things.

G D Naidu would have loved to be active in the present times!

Sunday, August 13, 2017

The Majestic Mount Rainier



The term Pacific Northwest is used with reference to the geographical region between the Pacific Ocean in the west and Rocky Mountains on the east. Oregon and Washington states of the United States of America and British Columbia province of Canada form the core geographical areas of the region. Sometimes even Alaska and the northern mountainous regions of California are also included in this term.  The area has bountiful natural beauty with the Pacific Ocean on the one side and the coastal mountains, Cascade Range, Olympic Mountains, Columbia Mountains and the Rocky Mountain range on the other.  The Mount Rainier National Park in the Washington Cascades is one among the many tourist attractions in the area. Vancouver (British Columbia, Canada), Seattle (Washington state) and Portland (Oregon state) are the major cities in the Pacific Northwest. Water bodies, hills, wild life and rich vegetation have made the area attractive to visitors. Many man made monuments and attractions have enhanced tourist interest in the region.


Mount Rainier stands 14,410 feet (4392 meters) above sea level and dominates the southeastern skyline horizon from Seattle and surrounding areas on any clear day. Its snow clad peaks can be seen from several miles distance. The mountain was originally known as Mount Tacoma or Mount Tahoma and forms a part of the Cascade range. It is said that Tahoma meant "Mother of Waters", signifying the six major rivers in the area, that take their birth from the perennial melting glaciers on the mountains. Captain George Vancouver of the British Royal Navy who surveyed the Pacific coast in 1792, named it as Mount Rainier after his friend Rear Admiral Peter Rainier. Both names were being used until the establishment of Mount Rainier National Park. Facilities for the visitors and tourists have been improving since then and Mount Rainier has become a important tourist destination for people visiting Pacific North West. 

Mount Rainier is in fact an active volcano and counted as one among the 16 worldwide active stratovolcanoes. That makes it one of the most dangerous volcanos in the world. In case of eruptions, the damage would be wide-spread. The ash eruption may affect areas up to Vancouver in the north to San Francisco in the south. Geologists have identified 26 major glaciers and 36 square miles of permanent snowfields that cover the peaks of the mountains. Two volcano crates of more than 1000 feet diameter are visible at the top of the mountains.  

Views of Mount Rainier varies from season to season. The green valleys below the mountains is a wonderful sight during the summer months. The all-white snow clad view in winter months has its own beauty. One can say that it is a matter of opinion, but the views during the months of August are a sight to behold. On a clear sunny day in August, the mountain offers a majestic view with lush green meadows in the foreground. 


One of the best views of the mountain is seen from a lake near Paradise visitors center. on a clear day with no winds blowing across, the reflected image of the mountain peaks can be seen in the still waters of the lake in the valley below. The lake is appropriately named as the "Reflection lake". The picture given alongside has captured this view beautifully. The area around the valleys is a popular destination for hikers and campers. Backcountry skiing, winter sports and rock climbing are the activities indulged in by adventure lovers. August month also offers great views of miles and miles of subalpine wildflower meadows. Waterfalls and small rivers and rivulets add to the beauty of the scenic spots and view points. Parking is a perennial problem, but the mere drive along the roads is itself a rewarding experience.  

The park can be visited from three different approach routes. Our visit yesterday was from the Seattle side. The 54 mile drive to the mountain had around 25 miles in the climbing road through the forest areas. It was a pleasant drive amidst wonderful scenery. The sunny day gave ample opportunities to see the majestic mountains as well as green meadows in the valleys, subalpine flowers, clear lakes and rivers and enabled enjoying the true grandeur of the Mount Rainier.

If you are anywhere around Pacific Northwest with a day to spare, Mount Rainier is the place to go! 

Monday, August 7, 2017

It will shake you...


All stakeholders love profit making companies. Loss is a dirty word in finance and banking, except when it refers to the competitor's financial statements. The era of computer accounting has changed how financial statements look now. In the days of manual accounting, black was indeed beautiful. It was so because loss was shown in red ink in the statements then. Companies pride themselves in stating that they have an interrupted profitability record. Investors love to invest in profit making companies, and more particularly regularly dividend paying companies. All companies do not make profit every year. Even those who make profits are unable to declare dividend every year. Regularly profit making companies also skip dividend payments in some years. Most regularly profit making companies declare dividend once in a year. Shareholders look to these annual announcements with interest and hope. Occasionally they are rewarded with bonus shares or a bumper dividend. It could even be said that receiving dividends on investment in shares depends on the companies profits as well as investors luck. Some companies declare mid-year or interim dividend followed by a final dividend. A dividend every quarter is almost unheard in the annals of business enterprises.

Then there are industries and businesses that follow a cyclical pattern. They have their up years and down years. Good years are almost certain to be followed by bad years. Managements of such companies have special strategies in place to deal with such cyclical patterns. There are industries whose performance depends on performance of the economy in general. They ride on good times and wobble during bad times. Thus consistent profit making and dividend paying is indeed a golden achievement for companies in such industries, during these turbulent times.

How about a company that has continuous profit making as well as dividend paying record? Also a record of paying dividends every quarter for a long period of time?

Southwest Airlines is a company that belongs to this rare category. It has all these features. As a company in the airline industry, its performance is directly linked to the performance of economy in general. It is a part of the turbulent industry, literally and figuratively. In a boom year the performance can be better and in the years of depression it has all possibilities of nosediving. But Southwest Airlines has  a record of continuous profits for 44 years. It has been paying dividends every quarter for the last 41 years. The Airline recently declared dividends for 164th consecutive quarter!

Southwest Airlines is indeed a very interesting case study for academicians as well as business enterprises.
*****

What makes Southwest Airlines such a distinguished company? Those who use its services frequently are well aware of these features. Some of them are:
  • Goodwill earned over a period of time by providing efficient low-cost flying experience.
  • One of the best overall on-time performance.
  • "When you fly, your bags fly free". The airline allows two checked-in bags as against one bag by most other airlines.
  • "No assigned seat" seating system. Seat numbers are not assigned at the time of booking or checking in. Instead a boarding group number is given and one can choose any available seat once inside the aircraft. 
  • The company uses only Boeing 737-700 and 737-800 aircrafts. While this in itself may not be a special feature, this facilitates training of all crew members efficiently and flying as well as cabin crew are at home on any aircraft in the fleet. (Those of us who were in banking industry during the initial years of computerization with different vendors know the difference!)
  • Friendlier cabin crew and courteous behavior.
  • "Bring your own food" system that allows flyers to bring food from home and use it on flights.
  • "Not charging change fees" that allows flexibility in travel plans and last minute changes without extra cost.

A statement printed on the paper napkins reads "In a world of many "No"s, we are a company of many "Yes". 
*****

The flight to Chicago Midway airport had taken off as scheduled from Philadelphia International airport at 5.30 PM on Saturday, 5th August, 2017. There was some anxiety in the mind as the connecting flight from Chicago to Seattle was to take off within one hour from the scheduled landing at Chicago. The airline policy of no assigned seats came in handy as seat 1C, the first seat for getting out of the cabin on landing was available for grabs. 

The usual message from the CEO in the airline magazine, kept with safety instructions to be followed in the aircrafts, made interesting reading. Gary Kelly, Chairman and CEO of Southwest Airlines had mentioned that he would sum up his 31 year experience with the company in "Our People". I was going through the article when the cabin attendant enquired about the choice of soft drink to be served. The CEO had mentioned that the company looked for three qualities when they hired people: a Server's Heart, a Fun-LUVing Attitude and a Warrior's spirits.

I was just handed the apple juice cup when the pilot advised on the PA system, all the passengers to get back to the seats and fasten seat belts. He said that we may experience some heavy turbulence for the next few minutes. We were cruising at 36,000 feet and generally not much of it happens at that height. For first time flyers turbulence can indeed be scary, but seasoned travelers take them in their strides. There were indeed some instances in the past when drinks were spilled during such extreme movements of aircraft in the air. But what happened at this time was indeed different. The violent shaking threw out all the liquid from the cups of all three of us in the front seats. The cabin assistant had to use sheafs of paper napkins to wipe the soaking liquids. The turbulence continued for several minutes. Cabin attendants ran to their seats and buckled themselves. It was indeed an experience! Many might have suddenly remembered long forgotten prayers on their lips. After about 15 minutes, things were back to near normal and rest of the flight was uneventful with smooth landing at the Chicago airport. We got extra serving of juice to compensate for the wet dresses!

The entire thing fell in perspective when a news item on the next morning was read and understood. 
*****

An American Airlines flight (flight number 759) had taken off from Athens in Greece to Philadelphia nearly ten hours ago when our experience on southwest airlines happened. The flight was full of people who had spent their vacation in Greece. The 10 hour flight was another normal flight and the aircraft had cleared its flying over the Atlantic. Passengers later even described that the American landline was visible from the sky. A sudden strong bout of turbulence hit the plane. A man who was on his seat flew high, hit the ceiling and landed hard on his father sitting on the next seat. Ceiling of the aircraft was splattered with coffee and there was coffee flowing in the cabin. All flight attendants ran for safety. After sometime, one attendant appeared and said that she was the only one able to serve others; other flight attendants were injured and needed help themselves. The turbulence lasted for sometime, but final landing at Philadelphia was indeed smooth. 

Ten people including seven flight attendants were hospitalized after the flight landed in Philadelphia. Travelers said that it was as if the aircraft was on a free fall. The experienced pilots and the capabilities of modren aircraft had saved the day. There was no forewarning and the previous aircraft that had just passed that area had only reported mild turbulence. There was no time to react or go around the troubled area in the sky.

We were on the Southwest flight to Chicago, a few hundred miles to the west in the sky, around the same time.
*****

Safety instructions like being with seat belts on at all times while seated and reading safety instructions are often ignored by travelers, especially the frequent flyers. The American Airlines flight 759 experience is a timely reminder to highlight the importance of safety instructions. 

Thomas Campbell's Loichiel's Warning mentions ".... And coming events cast their shadows before.."  It is a famous quote that is often used to say that shape of things to come are given out by some warnings well in advance.

Not always, as this turbulence showed.

Sunday, July 30, 2017

A long way to go .....


What does a traveler coming out of an airport after a long journey desire? First thing could be searching a relative, friend, known face or contact who has come to receive at the airport gates. If this is found, it also solves the problem of transportation into the city. If there is no such comfort of a known face or contact, the next thing could be transportation into the city. It is the same whether the destination is a hotel or one’s own house. A peaceful and comfortable ride without hassles of luggage handling is one thing that anybody wants at that point in time.

Modern airports have many solutions to meet this requirement. There are metro services linking the airports with city areas that provide efficient and fast transportation. Many airports have bus service that are comfortable and cheap. If both these are not available, the only alternative is to take a taxi ride.

There would be good experiences as well as bad ones when one compares what was faced on the several such trips taken in the past. The details of the experiences would certainly vary. But the establishment and following of the systems indeed makes the difference to such experiences.

A reflection on these issues, while sitting at the CDG airport at Paris for a connecting flight, indeed brings out very interesting aspects of such encounters in different cities.
*****

As you come out of Bengaluru International Airport, the only two alternatives available are the taxi service and city transport buses. Metro is said to be coming, may be at the times of our grandchildren. City buses are fine for those traveling with a handbag. Even here, the way in which the buses are parked at the terminal reminds of the maze games one plays on their mobiles. Those arriving with heavy luggage, especially after long international flights, have the only option of taxis to take them up to their doors. Usually there is a line of waiting taxis ready to hire, but the process of reaching one's destination is often painful.

Though waiting in the line for a fare, the cab driver is more interested in knowing where you want to go than yourself. Some of them ask other fellow drivers in the line if they are interested, in case the location is not to their liking. They are happy with passengers who have little or no luggage. Heavy luggage puts them off. When the car boot is opened, the driver waits to see if you volunteer to handle the luggage yourself. More often than not, you find the boot dirty with a bucket and dirty cloth occupying the place that is actually meant for baggage. Popular taxi operators do not provide the option of bigger vehicles for airport duty. The taxi driver will be generous to offer help to you in such situations. He suggests that you hire another taxi exclusively for the luggage. There was an instance when two of us arrived with four suitcases. The driver was kind to suggest that we take two taxis and one person with two bags can travel in one taxi. Problem was easily solved! There are private operators who provide bigger vehicles but they are parked away from the gates. You have to walk the extra distance to get into them. Their charges are also very high.

Once in the taxi, the problems are not over. The driver asks you the route he should take. When you give the route, he offers many explanations why it should not be taken. Ultimately he takes the route he wants. Married people understand this system, but unmarried people find it strange. Many of them do not know even important landmarks and you are required to give directions. Strangers to the city have a big problem on their hands. Drivers ask about the place from which you have arrived. If you answer, there will be further questions. The drivers are often shabbily dressed and unshaven. If you ask them why they are so, they say that their duty hours are like that. Even if the taxi company claims that their cabs are all AC vehicles, the drivers do not use AC. If you insist, they grudgingly act or advise that it is not required for Bangalore weather conditions. Most of them get calls on mobile while driving and unhesitatingly receive them without excuse. After all, it is his cab, his mobile and his own friend calling him. The calls are usually long and mostly centers on where is he and how many trips he did that day. Fortunately, no additional charges are levied for giving all this information to you.

As the cab eases from the airport and reaches the tollbooth, he stretches his hand for the toll charges. There is no system of paying the toll and collecting along with the fare at the end of the journey. Once toll is paid and the cab is on the highway, he switches on Radio City or Mirchi FM and you are given a generous dose of the music he wants. If you ask him to switch off, he scares you that if he does so, he may doze off. I once suggested to a cab driver to use earphones. He said that ear phones disturbs their concentration! Cab companies claim that card payments are accepted but many of them do not do so for some reason or the other. When you reach your hotel or house, you are indeed relieved. The memory of cab ride erases whatever problems you had on the flights!

*****

A line of taxis wait outside CDG airport in Paris. The next taxi moves towards you. The driver is well dressed and polite. If you have more pieces of luggage, a bigger vehicle from the line comes to you. The cab driver picks the luggage and arranges neatly in the clean boot. You have to give the destination address. The drivers know the roads and lanes and you are taken up to the building you are looking for. They do not talk unnecessarily on the way, During our last visit, there was a charge of one Euro baggage handling charge per piece of luggage. There were no charges for small items carried inside the cab. 

The system has been further streamlined now. The fair table is more simple. The amount to be paid from CDG airport to left bank is 55 Euros. It is 50 Euros for the right bank. Irrespective of the distance amount is the same. Left and right banks refer to the banks of the river Seine that flows through the city. If it is from Orly airport, the fares are 35 and 30 Euros respectively. The fare is the same whether it is during day or night or rush hour. It is the same on week days and weekends. There is no extra fare for baggage now. The fare is same for up to 4 passengers. An additional 4 Euros are charged for each passenger in excess of four. Drivers have earphones if they desire to listen to their choice tunes. If a cab is called on phone from home to go to airport, it arrives within minutes. The cab driver handles the baggage. Extra politeness is shown to the aged and differently abled. Overall, it would be a pleasant experience.
*****

The purpose of this post is not to suggest that the systems are excellent everywhere and our systems are bad. There could be bad experiences elsewhere also. There may be good experience in Bengaluru as well. 

We have a long way to go in improving our cab services if our tourism is to progress and traveler friendly, and making our cities popular tourist destinations.

Friday, July 21, 2017

Pappad and Pickles



Pappad or Papadum or Happala is a food item that comes in many shapes and sizes. It is made from several ingredients and is a supplementary dish used with lunch or dinner in many parts of the world, especially in the Indian subcontinent. Just as its variety, it also comes with many spellings. The picture given above may explain the item better than words. Pappad is typically made from gram flour with many ingredients added up depending on the seasonality, availability as well as taste requirements of users or makers. It is prepared, dried in the hot sun or shade, and stored until time of actual use. It is mostly fried in oil or cooking medium before being served hot. Some variants are also spread on burning charcoal. It should be consumed within a few minutes or hours of it being fried or heated. It is used as a side dish and very popular with children and aged alike. In tropical areas, it is prepared in summer for use throughout the year. Pappad making is a home industry in many parts of the world and provides employment as well to many workers in the unorganized sector.

Pickle is another item that is consumed with lunch or dinner. It has many variants like pappad and adds taste to other items. Its preparation and ingredients varies in different parts of the world. Lemon or raw mango pickles is very popular in Indian subcontinent. Cucumber or similar vegetables are used in some parts of the world. Serving pickles is easier than pappad as there is no processing required before serving. The ingredients are mixed with chilli powder and other spice powders and preserved in vinegar or brine (salt water). Properly packed item can be served directly from glass or plastic bottles. It adds variety to other cooked food items. Pickles are also good for spreading on bread of any type and can substitute fruit jams for diabetics. A small ball of butter is always a wonderful combination with pickles. One should not worry about cholesterol on such occasions. Forgetting unwanted issues while consuming these items is indeed a virtue, at least while consuming them.  
*****
A close relative wanted to invest in gold recently. The galloping stock markets did not provide any comfort as a collapse may be round the corner at all times. Investing in gold appeared to be the best bet in present times. Notwithstanding eye catching advertisements by innumerable gold outlets, she preferred to buy gold coins. Making charges and wastage calculations were uncomfortable for her. Any appreciation in gold value was swallowed by these subtle disguises while selling the ornaments. I had tried to sell some gold coins to her while in service in the bank a decade ago. All banks were vying with one another for selling gold coins then. There was a time (some four decades ago) when friends and relatives were running away at the sight of a relative who worked as LIC (insurance) agent. Similarly, my friends and relatives were also trying their best to avoid me when gold coins were being sold by banks.

At the request of this relative I tried to find a bank that sold gold coins. To my utter surprise, none of the banks were having any stock. Some of the contacts confessed that they have stopped selling gold coins long ago. Even the websites of private banks which showed gold coins as a product indicated that they are not available at present.
***** 

Banking is known as a business of raising resources (deposits) and deploying them as loans and investment. Traditionally banks were concentrating on deposit mobilization. There was a time when a bank manager's most important work was procuring deposits. Lending was not a big task then as resources were scanty. Loan seekers were chasing bankers then. Credit squeeze and credit restrictions were in force. Banks had to obtain permission from RBI for disbursing their own funds sanctioned as loans to borrowers. This was called Credit Authorization. With the opening of the economy and globalization, movement of funds became easier and markets widened. Presently, deposits are pouring in and banks in India are finding it difficult to deploy their funds. Credit dispensation is not picking up. There is a mad race in retail lending now. Home loan takers never had this scenario before.

Banks made profit by charging more interest on loans than they paid on deposits. Central bank (RBI) prescribed and dictated interest rates for both deposits and advances. Interest rates in all banks was the same. Interest rates are deregulated now. Banks are free to fix their own interest rates for both deposits and advances subject some minimum restrictions. Banks make profits even now through the difference between lending and deposit rates. But there is pressure on margins. As spread (difference between interest rates on loans and deposits) became thinner, banks looked for earning from other services. There are concerted efforts to reduce burden (difference between non-interest expenditure and non-interest income) as the burden appears even more burdensome now. Traditional non-interest income sources like commission on fund transfers and agency functions like collection of bills have dried up like our water reservoirs. These conditions made banks jump into any business that gave additional non-interest income. While some business avenues like sale of gold coins have almost exited, selling third party products has taken center stage. Small Finance Banks, Payment Banks and non-banking players have further heightened the complexity of profit making by banks.


When one talks to young bankers today, there appears a confusion in their minds about real banking. Selling third party products has pushed traditional and core banking activities like deposit mobilization and lending to the background. Deceleration in economic activity and lack of demand for credit (loans) have made life difficult for bankers. 

*****

Rice with Dal (or Sambar or Rasam) is the main food habit in South india. Roti-Subzi is main item for people in North India. Some use a combination of both. Pickles and Pappad are additions to the main food items. One can have a meal with only rice and dal. Similarly, there can be a meal with roti and subzi (vegetables), or dal and roti. They are consumed even without pappad and pickles. Pappad and pickles alone never make a meal. They add variety and taste to the main course served in a meal. They are not a substitute for dal roti or rice-sambar.

Banking is essentially an activity of raising resources and lending the funds to those needing it for their ventures. Selling third party products alone never makes banking. Non-interest income cannot replace interest income. It should always be augmenting interest income. 

This is not to put down the importance of selling third party products. It is only to emphasize the importance of the basic and core banking activities of raising resources, and lending and investment. Sense of proportion should not be lost and the cart should not be put before the horse.

Saturday, July 15, 2017

The First Mistake


Little Lakshmi returned home from her school in the afternoon. Her mother was busy inside the kitchen doing some work. It was a hot afternoon as the sun was blazing outside. After the short walk from the school on the burning day, Lakshmi was feeling very thirsty. The first thing she wanted was some water to drink. She saw the bottle of water kept on the table. She took it and drank from it urgently even as her mother came out to receive the daughter who had just arrived from school.

The little girl started screaming. It took a minute for the mother to realize what had happened. The liquid in the bottle kept on the table was not water, but the liquid used for cleaning the house. Mother had just finished cleaning the house but had not yet put the cleaning liquid in its place in the bathroom. The colorless liquid looked like water. The practice of keeping water in used plastic bottles made Lakshmi believe she was indeed drinking water.  The liquid contained dilute acid as an ingredient. However much dilute, acid is acid. Acid did not know that Lakshmi drank it by mistake. It did its job. It was mother's first mistake to keep it on the table. It was Lakshmi's first mistake to drink it. Neither knew that it was indeed a mistake. But the damage was done.

Raju, an electrician, was not available for a few months. When he was seen around later and asked about his absence, he narrated the case of his daughter Lakshmi. The girl was rushed to the hospital and given immediate treatment. Her gullet was burnt badly and had to stay in the hospital for months. Even now she is unable to speak properly due to damage to the throat. She may have to put up with it for the rest of her life. Her first mistake was not condoned by the acid. The financial burden of hospital expenses added to their misery. The first mistake turned out to be very costly for her and her family.
*****

Ramesh was recently promoted as a Branch Manager in the bank. He was full of energy and wanted to prove his worth. As all first time branch managers, he wanted to be ahead of the rest of the pack and move up in the organization. There was a loan account in his branch which was due for annual renewal. The party had requested for enhancement of limits. The account was conducted well and enhancement was indeed justified. On his recommendation the enhanced limits were sanctioned by the higher authorities. The facility was duly released to the party.

There were some sticky loans in the branch. As per usual practice, an inspector came to the branch for investigating the causes for the loans turning sticky. The inspector made a thorough study of the loan accounts. He submitted his report in due course. The report had mentioned that two of these loan accounts were guaranteed by the Managing Partner of the firm for which recent enhancement in limits were given. The report also mentioned that while recommending enhancement, branch manager had not mentioned the fact that two other loan accounts in the branch, guaranteed by the Managing Partner of the firm, had turned bad. In the ensuing enquiry proceedings Ramesh pleaded that this was an oversight and he had no intention of concealing the information. The enquiry held him guilty and he lost two increments. His promotion ambitions were set back by at least four to five years. It was his first mistake and it did not matter.

Ramesh pleaded his case with authorities in person. He was told that the punishment was light because it was his first mistake and apparently there was no intention on his part to conceal the facts. Otherwise the punishment would have been even more severe. Condoning first mistakes would be very costly for the organizations as there would be a spate of first mistakes if all first mistakes were condoned.
*****

There are many definitions of mistake. On-line dictionary defines a mistake as "an error in action, calculation, opinion, or judgement caused by poor reasoning, carelessness, insufficient knowledge etc". We all commit mistakes regularly and almost on a daily basis. Fortunately, most of them are harmless. We get away with those mistakes. But there are some mistakes that prove to be very costly. Some of them are deadly. What was the reason for the mistake does not count when the consequences arrive. Reasons do not alter outcomes.

There are many views on mistakes. People often quote Thomas Edison who said that he did not make mistakes but found 1000 different ways that did not work. Mistakes are stepping stones to learning, some say. Committing mistakes only shows that we are humans, goes another quote. These are all true when seen in proper perspective. In the context of research and invention, what Edison said is acceptable. Mistakes that happen in the course of learning are also acceptable. But mistakes that happen in the area of personal safety, compliance and following laid down rules and guidelines are on a different footing altogether. They extract their due and do not forgive even the first mistake. The price paid is often very heavy.
*****

There is a tendency among some in the younger generation to commit mistakes and then plead that it has happened for the first time. There are also assurances that they will not repeat. Both these repeat with unfailing regularity. 

It is wise to remember that there may not be a second time for many mistakes in life. Respecting rules and regulations, compliance with the required guidelines is always a safer and better option.

Sunday, July 2, 2017

Executive Summary


We often hear people say "We have to take a decision" or "We are unable to take a decision". What is a "Decision"? Why decision is to be taken? What are the consequences of not taking a decision in time? How a decision is taken? What are the inputs for taking a decision? These questions do beg for an answer.

The word "Decision" is defined in many ways. One of such definitions is "the act or need for making up of one's mind". It is a mental process leading to some conclusion. This conclusion then leads to action or a set of actions. Decision making is an important requirement in any aspect of life. We are making several decisions everyday in our personal lives. Some are of not much impact on the future happenings. Some others may change the course of lives and communities. It is so even in organizations. There are defined processes in today's institutions and business enterprises for arriving at decisions. It is even said that "Not taking a decision is also a decision"!

Let us examine an example to understand the process of decision making. A loan application is received in a bank branch. This is the first set of papers that starts a file. As the application is processed at different levels in the bank, papers pile on the application. The size of the file grows. There is bio-data or information about the promoters. There can be information about the allied firms or group companies. There can be a bulky DPR (detailed project report) prepared by an expert. There would be an analysis of the DPR by another independent expert. A techno-economic feasibility study report would join these later on. Then there would be financial statements and their analysis reports. The file would arrive at the next level with a full-fledged proposal for sanction of credit facilities with the recommendations of the branch manager. Experienced experts would further add value to the file by adding some more papers. Clarifications may be called for and in reply some more papers would be added to the file. The proposal finally arrives at Head Office. Here we have some more super experts who dissect the entire file and come up with their own report and recommendations. The collective wisdom or foolishness of all these experts, super experts and ultra-experts has produced a big file with voluminous data and multiple analysis. The file is now sitting on the table of the big boss, who is the sanctioning authority. 

In respect of high value proposals, the file has one more hurdle before reaching the big boss. There would be a committee of experts to discuss and deliberate on the proposal. It has names such as "Executive Committee" or "Credit Committee" or "Committee of Experts" or some other similar fancy name. This committee vets the entire file (or it is so believed) and the big boss has one more set of papers for his perusal. Now a decision has to be taken unless the promoters have found someone else who has already sanctioned the loan or have abandoned the project by now. The ultimate result may be a simple two line letter stating that the proposal stands rejected (the second line may have been added as one line alone may appear to be curt or unprofessional) or it may be a sanction followed by a long list of terms and conditions. Of course, there would be another set of experts who analyze these terms and conditions in greater detail and come up with fully acceptable arguments as to why these conditions should not have been there in the first place. That is for another future day.

The bog boss has a tough task on his hands now. He has a voluminous file (or it could be a set of files) before him to take a decision. The issue is not different even in a computerized atmosphere. There are many files in soft form here even though the task itself is indeed hard. There are many similar sets of files before him and they all call for a decision expeditiously. How can he read and understand all this information and decide in a short time? There is no hard rule that a decision is to be taken after understanding the issues. But still the belief is that the issues are read and understood. Therefore there is a need for a tool to place on record that the sanctioning authority has indeed applied his mind on the issues involved. There is great deal of comfort in such understanding for all concerned, except those who are disappointed with the final decision. 

Hierarchies have invented a wonderful tool to answer this challenging issue. It is called an "Executive Summary".  An "Executive Summary" or "Management Summary" is a short document that summarizes a long report or proposal or file or set of files in such a way that the reader can understand the whole issue rapidly and become an expert instantly. This enables the user of the executive summary to grasp the entire gamut of underlying issues and come up with a quick decision. The executive summary has rendered decision making fast, easy and painless process, though preparing an executive summary itself may be a very painful process for those preparing it.
*****

A senior bank executive was fed up with his high voltage banking activities day after day and desired a change from the monotonous routine. He decided to take up study of literature as a diversion measure and recoup his energies before resuming the banking activities once again. He took a month's leave and went to a library to start his literary pursuits. (He was surprised to find that a month long leave was sanctioned to him and wondered how the organization would work without him for that long. But others in the bank knew that his presence or absence did not really matter). He was astounded at the volumes of books everywhere and did not know where to start his mission. It also dawned on him that there was no way he could finish even a small part of his new found hobby in the one month period. He checked on the authors of the books on "GOOGLE" and found that sage "Veda Vyasa" was one of the oldest and biggest authors of all times. He sought an appointment with Veda Vyasa which was duly granted. He met the great sage on the appointed day at the Badarinath abode of the sage in Upper Himalayas. The conversation went on something like this:

"OH mighty sage! Thank you for granting me this appointment and more than that sticking to it without excuses to avoid it. I want to study literature but do not know where to start. As you are considered first among the authors, I thought I should consult you to find a solution to my problem" (The executive should have used the word "see" instead of "Consult". Fortunately, no consultancy charges were levied as the sage did not find any use for money and did not even have a Jan Dhan Zero Balance Account as no banker went to that cold place to open his account. The sage would have found it impossible to produce the required photo identity and address proof. He has no AADHAAR as well).

"Young executive, How can I help you?" (Though the executive was old and on the verge of retirement, he was young for the old sage whose real age is not known to us....)

"I am used to reading "Executive Summary" on files and understand the contents"

"I know that. What can I do for you?"

"Can you prepare and give me an executive summary of all your literary works? That helps me to save time and understand your literary productions"

"Dear young man, you indeed appear to be hard-pressed for time. What should be the size of the summary you desire?"

"Can it be in six or eight pages? If you can make it in four, it is even better"

"Do you want an executive summary only for my works or for the entire literature in the universe produced from eternity till now?"

"That is a perfect solution to my problem, but make it as brief as possible"

Sage Veda Vyasa smiled. "I do not need even four pages and I do not need time to prepare it. I will give you an executive summary of all the literature in this world in half a verse (Half stanza). In fact I have given it long long ago. For your benefit, I will repeat it now. Listen carefully"

श्लोकार्धेन प्रवक्ष्यामि यदुक्तं ग्रन्थ कोटिभिः |
परोपकारं पुण्याय पापाय परपीडनम् ||

Slokardhena pravakshyami yaduktam granthakotibihi
paropakaaram punyaya papaya parapeedanam

I am summarizing all that is said (written) in the millions of books in half a line. Whatever is done for the benefit of others is Punya (Good deed). Whatever done that harms others is Paapa (Sin).

*****

Executive Summary is not a product of modren management schools. We can find its origin as well in Sage Veda Vyasa!