Sketch­ing the Ge­netic Code of A Good Bank Is Tough

The Economic Times - - Money & Banking - ROBIN ROY R K MISRA

There is no gain­say­ing that the en­gine of the econ­omy is fu­elled by banks and as the econ­omy de­vel­ops, the bank­ing and fi­nan­cial ser­vices sec­tor has to keep pace. To their credit, In­dian reg­u­la­tors have un­der­taken phased re­forms to help make this con­tin­u­ous tran­si­tion least dis­rup­tive. With the In­dia growth story show­ing signs of pulling back as per lat­est OECD GDP projections (May 2015) to 7.5 %, the bil­lion dol­lar ques­tion is, do busi­ness en­ti­ties and in­di­vid­u­als con­tinue to de­pend on banks only for their busi­ness re­quire­ments?

Banks be­ing the most evolved in­ter­me­di­ary, be­tween savers and in­vestors, their “in­flu­enc­ing power” in the econ­omy is un­equiv­o­cal and they have to demon­strate good eco­nomic be­hav­iour to in­still dis­ci­pline in the fi­nan­cial ecosys­tem. Loom­ing on the hori­zon are new me­di­a­tors. In credit, we have shadow bank­ing (NBFCs), crowd fund­ing, peer-to-peer lend­ing. Draw­ing an anal­ogy from the or­ganic world with the marvels of evo­lu­tion­ary suc­cess, what could be the ge­netic make-up of a good bank, which pre­empts in­breed­ing (do­ing busi­ness with known par­ties), al­lows co-cre­ation, (new busi­ness mod­els, bet­ter risk prac­tices and larger par­tic­i­pa­tion in fi­nan­cial in­clu­sion) and en­cour­ages mu­ta­tion (dis­rup­tive think­ing) from time to time?

In evo­lu­tion­ary terms, the lo­cal bank­ing sec­tor has moved from the Pa­le­o­zoic era (pre-na­tion­al­i­sa­tion era) to Me­so­zoic (post-na­tion­al­i­sa­tion) to present Ceno­zoic era (Post-1991). Draw­ing upon Dar­win’s the­ory of “sur­vival of the fittest” many lo­cal banks need to in­tro­spect. Yet such is the im­pact of banks on the larger ecosys­tem, rarely are they al­lowed to shrivel or even wither away.

With so much weigh­ing on them, it be­comes ex­pe­di­ent that banks have to do a bal­anc­ing act be­tween its strate­gic in­tent and align­ment with na­tional eco­nomic ob­jec­tives. All this can orig­i­nate from a ro­bust “ge­netic struc­ture” based on the strands of DNA that com­bine to­gether. The most re­cent guide­lines on bank li­cences did touch upon this. So, can we sketch the ge­netic code of a “good bank” ? The genome of a commercial bank should start with the lin­eage. We are talk­ing here of lin­eage of ideas. Ideas flow from ex­pe­ri­ence, en­vi­ron­ment and un­der­stand­ing of the chang­ing face of con­sumer. The bloody trail of the re­cent fi­nan­cial cri­sis shows de­stroyed trust, mis-sold prod­ucts and a sprint for struc­tured prod­ucts. The stake hold­ers in a bank, de­pos­i­tors and busi­ness part­ners have di­verse ex­pec­ta­tions and the ge­netic code has to lay the blue print for its fu­ture. Next in se­quence, comes the mi­to­chon­dria (the ac­tion se­quence in a cell). The team which will run the bank. What kind of busi­ness sit­u­a­tions have they been ex­posed to: a MFI, i-bank, commercial bank, en­tre­pre­neur­ial ven­tures, IT ser­vices or re­tail. Will they be able to cross over to a more reg­u­lated en­vi­ron­ment and evoke trust among cus­tomers? The ex­am­ples from na­ture of a mu­tated DNA Liger (off­spring of a lion & ti­gress) or Tigon (off­spring of a tiger and lioness) couldn’t thrive. On a visit to Aus­tralia un­der a Ro­tary Study pro­gramme of banks, the in­trigu­ing idea of the com­ing to­gether of a Royal Ben­gal tiger and Kan­ga­roo was dis­cussed. It was con­cluded that the out­come wouldn’t be pleas­ant or ro­bust! Fol­low­ing this would be the build­ing blocks of the gene se­quence: the pro­teins. For banks, this trans­lates into the type of “strate­gic mus­cles” that a bank re­quires in to­day’s dy­namic op­er­at­ing en­vi­ron­ment. Can it be a more par­tic­i­pa­tive player and help in mar­ket cre­ation, can it per­form well in a dif­fer­en­ti­ated li­cens­ing en­vi­ron­ment?

An­other di­men­sion is the type of al­liances and part­ners be­ing brought in. Are their genomes (core busi­ness phi­los­o­phy) sim­i­lar yet dis­tinc­tive?. Can they help em­bed good prac­tices around com­pli­ance and risk. Such a ge­netic stock can also bring upon fu­ture mu­ta­tions (dis­rup­tive think­ing).

Fi­nally, in liv­ing or­gan­isms, their im­mune sys­tem rec­og­nizes re­ces­sive genes. In banks this is re­silience and in­built sys­tems in­clud­ing early warn­ing sig­nals to warn of many a brew­ing storm. In con­clu­sion, banks can­not be de­signed overnight but must be an ex­ten­sion of a set of good ideas and a ge­netic code that can with­stand evo­lu­tion­ary chal­lenges in fi­nan­cial ser­vices and reg­u­la­tory in­ter­ven­tions.

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