When PSBs drift away from duties

Anyone who visits public sector banks (PSBs) these days gets an immediate impression that the social responsibility imposed on them in 1969 and 1980 with nationalisation is crumbling. Operational changes like re-engineering, mechanisation and outsourcing have distanced customers from banks. Another cause of worry is the lack of guidance and missing interactions about banking services.

These factors largely resulted in the deprivation of financial services to productive activities of different sectors, weaker people’s welfare measures and a return to the pre-nationalisation scenario. Bankers are hardly approachable for financial services these days. Deposit mobilisation processes and product marketing have also taken a backseat.

Any innovative business design, including cross-marketing, should not inconvenience the public or result in trust erosion.

Two important changes have affected the traditional functioning style of banks — the orientation towards cross-marketing or non-fund business, and enormous mechanisation and digitisation. Non-fund business necessarily means the marketing of financial products of other institutions for earning income without investment. It is nothing but a bunch of financial services offered against nominal charges/commissions with the help of technology. These business traits have largely attracted young or new-generation customers. It has been found that bankers are engaged in earning non-fund income besides promoting customer-operated self-service. It has impacted the lending process, thereby distancing customers further.

The collection of charges for banking services is another hallmark. Digital transactions are promoted through electronic networks to ensure business effectiveness. Unfortunately, these trends have alienated customers and given an impression that the common man is being ignored with the onset of the privatisation process. When PSBs are charging like private entities, why should they be preferred with deposits?

Cross-marketing has taken up over 21 per cent of the average space in the banking business along with resources and time. In a few cases, it has even exceeded this. Non-fund business has affected the banks’ regular work besides causing work pressure. Earning non-fund business income is a challenge, which has come at the cost of core banking functions. A poor marketing environment without any incentives puts employees to stress. The lack of a Memorandum of Understanding with business correspondents like microfinance institutions, self-help groups and cooperatives has impeded business growth in backward and unbanked areas. The PSBs display a rigid mindset even in digital transactions by collecting transaction costs from customers, which is completely unjustified. A major lacuna in digital transactions is the users’ lack of knowledge about the product. Customers are inconvenienced when banks don’t display information about their products and services from a comparative perspective.

Public sector banks and similar financial institutions should focus on maximising benefits for people, especially for their customers and ill-served ones, rather than distancing themselves and focusing on non-fund business. The purpose of nationalisation is to meet the common man’s financial needs and release him from the clutches of uneconomic local money lenders. Banks should not lose sight of these goals in their push for modern banking. The unfortunate reality is that banks have yet to develop people-oriented products and services for the marginalised. The need is to design tailor-made products along with business, given the security and protection
they enjoy.

Secondly, microfinance institutions, self-help groups and cooperative society networks should be engaged to popularise banking products to people in unbanked areas. They can also serve as commission agents for marketing services, after providing necessary skill development and training to the workforce.

Thirdly, banks and financial institutions have not attempted to market their products at social events like the weekly and monthly markets, and in unbanked areas. They should canvass their products and services besides rebuilding the trust of people, which might result in better business prospects.

Fourthly, PSBs, being public-funded, must be accountable to people. They must effectively communicate their services to all age groups. Separate commission agents should be appointed for marketing products on competitive terms along the lines of private banks. Lastly, banks and financial institutions can enter into a Memorandum of Understanding in backward and unbanked areas with the help of recognised business correspondents; not bringing these institutions on board has been found to be a major setback in cross-marketing.

(The writer is Professor and Dean Research, Institute of Finance and International Management, Bengaluru)