Have We Come A Full Circle?

It was a Friday morning some fifty two years ago, in the early seventies. I was still a teenager and had just landed a bank job and was in the first week of learning new things. Everything was naturally new. I had just realised that banking was much more than receiving and paying out cash. It took only two days to understand that much of banking transactions happen without cash playing any role in them. As it happens with everyone in a new job, I had a mentor who volunteered to teach me various aspects of working in a bank branch. He liked me for two reasons; first because I was new and hence would not resist any work assigned to me, and secondly due to my good handwriting. As everything was done manually and thee was no imagination of computers, someone with a good handwriting was in great demand. One of the tests made before offering a job in the industry was writing neatly, especially in figures (numbers), irrespective of the writer's figure.

As I entered the branch in the morning, some half an hour before the business hours being new to the job, my mentor called me to his table. I was to sit on the counter chair. Seniority in the branch was very visible. Juniors were assigned counter seats whereas the seniors had the privilege of independent tables and chairs behind the counter.

"Did you have a good breakfast today?" he asked.

"Yes Sir. As usual"

"What did you eat?"

"Not much Sir. Only Two Idlies and one Vada, one Chow Chow Bath (a mix of Kesari Bath and Khara Bath or Uppittu) and one Masala Dosa. Of cource, filter coffee."

" Today is Friday. Hence I asked"

"What is special today, Sir?"

"Each working day we open the books in the morning and close at the end of the day after all transactions. on Friday, we not only conclude the day's transactions, but also prepare a balance sheet and send it to Head Office and Regional Office. It is known as "Weekly Statement of Affairs". In short it is popularly called as "Weekly". We have to prepare it, take copies and send by post today itself. It naturally gets a bit late today. Today you are going to do it. Hence a good breakfast and lunch is required!"

I was also excited and prepared the weekly statement under his guidance. Fortunately it was smooth and tallied in first attempt. Copies were taken and the Assistant Manager took it to the Manager's cabin for his final signature. After a few minutes I was called inside. I was asked to sit. We did not sit before the Manager unless he asked ius to do so. Manager said that he was happy it was done neatly and quickly, though it was my first attempt. Discussion went on between him Assistant manager now.

"I am happy that we have come to profit this month".

"Who worries about profit Sir? They look to Deposits and Priority Sector Advances only. They were looking at Profit before Nationalisation".

"No, no. Profit is also equally important even now, though not as much as three years ago.. They don't look at us kindly in monthly meetings, if we are from a loss making branch".

It was early years of "Bank Nationalisation". Resource mobilisation and Priority Sector Lending were key parameters. 

We had dinner together happily. Later my mentor took me to Railway Station. We waited for the mail train to Bangalore. There used to be a RMS (Railway Mail Service) bogie in these trains. There was also provision to post letters in a opening of the bogie after affixing additional stamp of five paise. We mailed the two envelopes and went home (room). Sending weekly statement had such sanctity in those days. On alternate Fridays, known as "Reporting Friday"' banks consolidated these statements received from all branches and prepared one for the bank as a whole, and sent it to Reserve Bank of India. 

*****

By early 1990s, I was myself a Branch Manager for several years. New Prudential Norms were introduced and the concept of NPA took birth. Profitability became a key issue. Banks even thought of shrinking balance sheets to achieve higher profitability. Branch Managers from loss making branches had vey uncomfortable times in meetings. 

There were workshops, seminars and training programs for "Turnaround of Loss making Branches". "Branch Rationalisation" was the buzz word and loss making branches were either closed or merged with others. Even some banks got merged with bigger banks when there was no hope of turnaround for them was felt impossible. "Loss" became a dirty word even if it was in Red Ink. Black was beautiful as it signified Profit.

Some banks that had the potential to turnaround but needed some care for an interval of time were prevented from making fresh advances as the basic reason for losses was bad loans portfolio. Banking has three activities; deposit mobilisation and the deployment of such funds as loans and investments. Since these banks were denied the avenue of lending and their operations were narrowed to the two activities of deposit mobilisation and investments, mostly in government securities, this was also called as "Narrow Banking".

Profit was all important then. Among all the lines "Bottom Line" became very important again. 

*****

Yesterday (20th June, 2024) Reserve Bank of India Governor was speaking at an event organised by the "College of Supervisors", on keeping the financial system resilient and crisis-immune. He urged banks "to avoid the mindless pursuit of bottom line". He also advised that "some profit driven business models may contain some hidden vulnerabilities, emphasising that profitability should not come at the expense of managing these risks".

"Risk Management comes before Bottom Line".

Have we come a full circle? For another time?

*****

To be fair to the Governor's guidance, he never said that profitability is not important. He only said that mindless pursuit of bottom line should not be made disregarding the risk aspects of unsecured lending, especially in the background of phenomenal growth in credit card dues to banks.

Profits are always the expected end products in any competitive business. We had a lot of fun when being a part of such meetings at different levels in the bank. A General Manager  heading Credit (Loans) Department would urge to lend by taking risks as business would not grow unless we take risks and lend. A month later when he became General Manager of NPA portfolio, he would  urge not to lend just to increase business as they create NPAs.

*****

Retirement and old age have their own advantages. We can look at all these developments from a distance and have a hearty laugh.