Alarge share of revenue of most of the traditional banks comes from interest income that comes from the borrowers. Around 60 to 70% of the total revenue of these banks is from this interest income. If we look at these banks, they are always suffering from deposit crisis. Traditionally they run behind the depositors and bring deposit at higher rate. As they bring deposit at higher rate, they can not lend money at lower rate and to invest these deposits, they also run behind the borrower customer for bringing loan. As a result, they do not always get good borrower customer. Because good and reliable borrower customers want lower rate which these banks sometimes can not afford. As a result, they run behind the new customers or customers who have not good business records. Under such circumstance, sometimes the bankers pursue the customers of other banks and offers them enhanced amount of loan. In some cases, some highly ambitious and newly growing customers want unprecedented expansion of their business and seek more loan from their existing banks and being failed to achieve the loan from their existing bank, they go to another traditional bank and somehow they accommodate these customers. Due to lack of experience, in some cases, these customers gets stuck up in their business. As a result, Non Performing Loan (NPL) of these traditional banks increases. A most common feature of such bank is the ratio of interest income verses fee based income in the yearly revenue is around 70%-30%.
What we learn from the above scenario is that the bankers of these traditional banks are under pressure from the depositors for higher deposit rate and at the same time, they are under pressure from the borrower customer for lower landing rate. This sandwiching effect raises the blood pressure of the bankers of these banks. As they are also under the pressure of meeting the profit target, they induct some bad borrower customers knowingly or unknowingly. The ultimate result is the increase of NPL.
As the revenue growth of these banks stops at some point of time due provisioning for NPL, the compensation package of the employees of these banks gets affected. It has become a tradition that in every 3 years, the salary package of the the advancing banks gets renewed with enhancement. When the same does not happen to these traditional banks, the employee morale of these banks also gets degraded. Good potential employees start to leave the bank and non performing employees of other banks sometimes fill up their position. As a result, overall performance of these banks gets deteriorated.
We have tried depicted the above scenario to present the fact that the banks should divert their attention from traditional way of doing business i.e bringing deposit and lending money to fee base income business. Some banks are increasing their non-funded business. Work order finance and LC business are two major business line, many banks are emphasizing. However, still some risks are associated with these business. Non-funded business sometime becomes funded and become bad loan as well. Therefore, smarter banks are moving towards risk free fee base service with the introduction of technology based services. ATM service, POS service, Mobile Banking, Agent Banking, Internet Banking are the growing and proven services in our country that the smarter banks are providing. Some banks are reshuffling their banking operations. They are using their branches as service outlet and marketing purpose only. Other operations such as account opening, LC processing, loan processing & administration are done centrally. The ultimate objective is to bring efficiency , transparency and to reduce fraud. However, still to bring these changes, technology investment is a must.
Our banking business model depends heavily only on branch outlet for a long time. As the cost of employee is higher, our cost of doing business is also higher. Therefore to reduce the cost, we have no other way but to change the branch model to such a model that the customers will move as usual as per their own will and the bank’s service will also move along with their customer because the modern customers are always connected with bank’s service outlet through Internet. The moment a customer desires a banking service, the bank should provide the service instantly through mobile devices like cell phone, Tab, Laptop etc. The future banking in Bangladesh will probably spread to the social network like Facebook, twitter etc.
Now if we understand that the future of banking is technology depended and a large part of revenue will come from IT enabled banking services that does not have any risk like NPL, so what are the problems? The first and foremost cause may the lacking of foresight of the members of the senior management of the traditional banks. Still some of them think that investment on IT is an expenditure. They forget that a banking does his job using information and Information Technology is the only means that can supply the right information at the right format and at the right time. Not only that the service that we provide to a bank customer also involves information. Therefore right kind of Information Technology is a must.
Then how to proceed. Lets assume that 10% of yearly revenue a bank wants to invest to procure right kind of IT solutions like Core Banking, Internet Banking, Mobile Banking, Agent Banking, Mobile Apps, ATM & POS network etc. If this bank’s yearly revenue is assumed to be Tk.500 Crore, then the invest amount on IT is Tk.50 Crore. Is is not enough for the bank having 100 branches? Usually we look at this Tk.50 Crore and say that it is a huge amount. But actually if a bank invest such amount in every year in a planned way, the return will come as additional service fee and low cost deposit that will certainly increase the revenue within 3 to 4 years. If we compare these additional fee and additional interest income, this investment of Tk.50 Crore will be negligible after 4 to 5 years. The fee based income may be raised by opening more new saving accounts and new retail loan accounts by employing third party low cost employees. Diverting a large number of customers to the alternate delivery channels like ATM, POS, IB, Banking through Mobile Apps may reduce the cost of doing business and hence will increase the revenue. Again the ratio of interest income and fee based income will move from 70%-30% towards 30%-70% and as a result, growth of NPL from new loans will be reduced and the bankers will be choosy in selecting good and reliable borrower customer. Of course, the human quality is a factor that has to be improved by improving the working environment and training facility along with the improvement of leadership quality of the managers and Head Office executives. ■