Government Banks: Instrument for managing macroeconomic challenges– at what cost?

 Urjit Patel book, beautifully explained the multidimensional ramifications of the phenomenon, he calls, banking sector fiscalization, wherein Government Banks (GBs) and other financial agencies that it owns, are used for managing day-to-day macroeconomic challenges, than allowing these institutions to be efficient intermediary between savers and borrowers. 

        

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1. We see ample evidence of this phenomenon in Banks being used for liberal credits to boost consumption, Farm loan waivers, support unviable MSME, underwriting of Government disinvestment targets, and sustain employment in Public Enterprises. It dilutes Banks incentive to be market efficient, nor exercise greater risk management discipline, and enhance dependence on Government to bailout, and meet capital adequacy norms, for example.  None of this is disputable or is mostly understood as well.…and this books authoritatively adds more substance (in terms of chronology, instrumentalities and figures) to the appreciation of the collateral damage that banking sector fiscalization has on economy in terms of high instances of NPAs, increased cost of capital, enhanced risk for depositors and overall weakening of economy to manage downturns and shocks.
2. It would have been interesting to know, how effective has Government been in meeting its objectives and overcoming short term socio-political-economic challenges leveraging GBs, and some would say to some extent, but at high long-term cost.  And were there any viable alternatives that were consciously ignored and would have been equally effective and palatable to Government.  Question is that using GBs to deliver its objectives comes as easy and convenient first option or the only the most prudent and viable option for the Government, driven by political needs and for-ever on- election seasons.  While the generic trend may looks to support the first case, it would have been interesting to get insight into options that were available (suggested by RBI) and still not exercised by Government of the day. 
3. Clear highlight of the book, and the most readable one. is the middle section titled as clean the augean stables, wherein Urjit takes us through the financial sector reforms trajectory woven around recognizing, resolving and ring-fencing the NPA mess. with the help of 9R framework.  The establishment of Central Repository of Information on Large Credits (CRILC) in 2014 rightfully marks the start of the journey, for it provided the critical information around the view on borrower-wise and bank-wise exposure, an essential baseline to conduct Asset Quality Review and report realistic assessment of distressed assets. 
4. Early attempts to revitalize distressed assets included schemes like SDR, 5:25, S4A (collectively called alphabet soup!) but with limited success.  May 2016, marked the passing of Insolvency and Bankruptcy Code(IBC), which not only promised time-bound route for resolution of distressed assets but also instill the real fear among promotors of losing their firm/assets to outside bidders and that liquidation is a real possibility at the end of road.  Despite this process being available, there was hesitancy among the lenders (mainly GBs) to push for initiating IBC process for understandable reasons, which meant that RBI has to be empowered, under BR Amendment Act 2017 to issue direction to banking companies to initiate IBC process for default companies on resolution of stressed assets.  We all recall with amazement and sceptism, the declaration by RBI in September 2017, of 41 accounts, with aggregate exposure of Rs 5 trillion (45% of total NPA) to be taken up under IBC process. 
5.  To avoid been perpetually involved in identification of accounts, on case-2-case basis and hence invite criticism, it was prudent on part of RBI (in February 2018)to issues prudential norms regarding account classification as special mention accounts on default of payment and eventual reference to NCLT in six months.  RBI believed that the provision that NCLT can be avoided by undertaking viable restructuring accredited by rating agencies, within six months, would be shot in the arm of bankers to push for improving recognition of asset quality and also work with promotors to revive assets.  However, future events did not endorse the RBIs beliefs.
6. Book recounts set of events and role played by Government, Lenders, Borrowers and their lawyers that led to serious dilution of the IBC effectiveness, most notably by removing timelines and by making the reference to IBC non-compulsory.  Urjit presents, quite convincingly and sometimes regretfully, his understanding of the possible motivations, compulsions and perspectives different stakeholders behind installing the pathway that was so meticulously created by RBI.  Nevertheless there is still credit to be given for resolution of 45% assets identified under first 41 accounts, and in general there is more vigilance and pressure on promotors to take care of quality of assets. 
7. Book asks a very interesting question- if courts had allowed RBI to issue directions for specific accounts, may be RBI could have come with another supplementary list in 2018-19 and continued with the cleaning process case-by-case!  What makes this books narration of the events different, is its complete obliviousness of the actors involved, within the RBI, Government, Banks and third parties. 
8. On the aside, book covers the emergence and subsequent dilution of PCA framework, debate around bad-bank, strengthening of RBI enforcement capabilities to detect operational frauds, recapitalization of Banks, Sector and MSME specific interventions and its impact on health of GBs and overall financial sector stability.
9. Book looks into reasons of high instance of frauds in GMS against that in PBs.  Market induced discipline is very high in PBs as any loss of reputation can lead to run on the bank by the depositors, besides curtailing their ability to raise fund in the market.  In cases where the market mechanism is weak, one would expect regulatory oversight to be stronger, which is actually not the case. 
10. Infact, regulatory disciple imposed by RBI is quite effective in case of PBs, in comparison to GBs.  Banking regulatory powers are not ownership neutral ie to say that RBI does not have / unlikely to have same level of control over GB as in case of PB, especially in the areas of corporate governance.  RBI cannot trigger liquidation, revoke license, force merger, nor remove directors and management at GBs.  Vigilance as source of discipline is effective only in the form of preventive vigilance, while punitive vigilance seems to be quite weak, in case of GBs.  Interestingly there seems to be correlation between instances of fraud and rise in stressed assets problem. 
11. Urjit doesn’t lay much hope of GBs improving in its efficiency and competitiveness and sees PBs increasing their share in banking sector, which he believes is not necessarily a bad thing!

Transparency, Teaming, Technology: Recalibrate 3Ts to amplify impact!

So much has changed and so much is still uncertain, making people-leaders’ jobs most exciting and impactful.  Demands for quick results on multiple fronts, are keeping Management deeply engrossed in making and executing people decisions.  In such frenzied times, it helps define priority themes, that tie all decision making and help amplify the impact of various interventions and produce better outcomes.

Never underestimating the power of context, uncertainty and volatility, I see three themes that would have the amplifying effect, and thus needs to be on HR Leaders’ agenda. They are – Transparency, Teaming, and Technology. The 3Ts need to be recalibrated to new demands, assimilated and integrated into every aspect of their work. Listed below are some of the questions that would facilitate examining the readiness of 3Ts and help define the transformation agenda:  

Enhanced Need for Transparency

Transparency depends upon the visibility that Management has, and openness to share what they know.  Both these elements need to be relooked into and strengthened:

1.      The importance of having deep talent-transparency is never more recognized, then at these times, when organizational needs are getting redefined.  To what extent is the data in the HRM system sufficient to give the kind of visibility required?  What level of confidence is there on completeness and validation of personal data in terms of health and wellness, or professional data in terms of expertise, competencies, skill profiles, or organizational data in terms of roles, reporting relationships, KRAs, career history? What about details of part-time employees, gig workers, FTEs, consultants, retainers etc? Are there data elements which we never bothered to capture or kept under voluntary section, which have now become mandatory, if we have to take timely and informed decisions?  How quickly can we fill the gaps?

2.      Workforce productivity is under scanner, especially as the workforce composition gets diverse, to include remote workers, gig workers, contractor workforce, consultants etc. and there are decisions to be made to deliver work in the most cost efficient and reliable manner.  To what extent is there real-time visibility on the workforce productivity defined at individual level (in different contexts), available through combination of reliable system data and discussions with managers, that can be leveraged in making talent deployment and development decisions. Do we have data to decide which jobs and which employees are more productive delivering at office or at home?

3.      Cost management is desirable at normal times, and most critical these days.  Driven by steep cost saving targets, conventional cost elements that were never under scanner, are now being questioned.  Suitability of the people related interventions would get evaluated based on the cost savings potential and impact on staff morale or overall productivity.  To what extent is there visibility of costs at right level of granularity and attribution to understand the cost impact of various people decisions?

4.      As consequence of operating context and delivery model changes, future skills requirements will get redefined, including the skills that needs embedded within in-house staff, and those that would be served through outsourcing partners or gig-workforce.  To what extent have the future skill (say Digital skills) needs in exiting jobs, new jobs made transparent to the employees so that they re-calibrate their self-learning journey, in the absence of which employees would either invest in learnings that are not relevant (lured by too many offers and options on-line) or stay frozen not knowing how and what to upgrade themselves on? 

5.      Strategic units across organizations are deeply engaged in environment scanning, scenario envisioning, risk assessments and option creations to account for uncertainty around the pandemic trajectory and recovery paths, and propose actions.  To what extent are the management assumptions and viewpoints about business shared with the workforce, so that employees are able to make-sense of management decisions and map implications on themselves, thus better prepared to manage transitions?  To what extent is their democratization of new and emerging opportunities and talent matching that is perceived as fair? How to ensured that people decisions taken are not seen as in conflict with Organization stated Values?

 

6.      Even in the best of times, manager-employee dialogue plays significant role in determining employees’ effectiveness, but in these transition times, this is pivotal to organizations’ resilience and agility.  Many of the workers are new to the concept of remote working, and may not be comfortable with Managers not available to walk-up-to anytime they like!  Managers need as much help in adopting to new forms of engagement with dispersed and diversified workforce as employees do. It calls for far greater role clarity, expectation management and frequent work-related feedbacks.  To what extent, are Mangers empowered and enabled to engage with employees to address concerns coming out of new operating conditions and be an effective channel in conveying right messages to the employees and also to gain honest and timely feedback?  Some managers may need greater support in managing difficult conversations. On-line, then ever before.  Have the managers learned the art of transmitting empathy on the net, while delivering honest feedback and tough decisions?

 Enhanced Scope and Nature of Teaming

Team work, while gaining in importance, may actually get compromised in the uncertain times, as new work-norms get established and team membership becomes more porous, transitionary and diverse. 

7.      If teams are indeed the basic unit of delivery, then to what extent have you configured the decision-making frameworks that consider team level competency, productivity, costs, risks and motivational requirements?  How are the different types of teams, varying in terms of skill composition, geographical dispersion, employment status performing and where are the interventions required?

8.      Virtual and dispersed team effectiveness needs greater emphasis on role clarity, work distribution, credit sharing mechanisms, information sharing and communication protocols than co-located teams.  To what extent, have you enabled employees to become effective part of teams and deliver to desired levels?  The cross-boundary teams, Technology, Security, Admin, IT, HR. that worked so well, ensuring work moved from office to home seamlessly, has revealed some lessons on effective collaboration that works in your context.  To what extent, there is deliberate effort to capitalize on that experience and improve cross-boundary collaboration as a general norm?

Enhanced Technology Leverage

Enhanced expectations from Technology to support new ways of secure working, greater employee empowerment (DIY norms) and data based decision making would mean that HR-technology Heads need to revisit the portfolio of capabilities already deployed and planned for deployment.

9.    In the resource constrained situation, it is time to relook at the current level of usage of the technologies already invested in.  To what extent are the rolled-out functionalities leveraged and what would it take to improve the usage score- is it retraining of users, or establishing clear data ownership or stopping the workarounds or making the applications accessible on mobile?  To what extent focus is to ensure that data that goes into MIS creation is robust and dependable, to justify the excitement about the visualization that specialized Apps and analytical tools are capable of delivering? 

10. There is obvious emphasis on need for increased usage of RPA for process efficiency, usage of chatbots for improving employee engagement and use of collaboration tools for better coordination between dispersed teams.  Understandably there would also be pressure to complete the digitization initiatives.  Further, trade-offs may be required between investments for capacity addition to existing infrastructure to allow for remote working and introduction of new applications within HRMS suite.  Is there clear mechanism to ensure that technology projects prioritization (from digital technology suites, eg.) is completely aligned to business usage and commitment to extract value with short payback period?  Is there mechanism to ensure that technology choices are made based on realistic understanding of the delivered functionalities of the proposed solution and not on the promises that are reflecting in the development road map?  How has the Technology Investment criteria being strengthened for greater accountability and realistic value-adds?

While the above may not be the complete list, but may help leaders (and that should include Business, Services function leaders as much as HR) to engage in quick diagnosis and reassure themselves that there are no blind gaps that are undermining effectiveness of other interventions.  

Some Corporations are better prepared, and to that extent would require few adjustments, while others would have complete transformation agenda coming out of self-diagnosis on these themes. 

Whatever be the starting point, the need to move swiftly and surely is the need of the hour for all, 

Do you agree?