Sketching the Genetic Code of A Good Bank Is Tough
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.
Views are personal