Risk Management

Risk Management

 Everybody Bank was set up with a registered office at Gwalior in 1995-96 by a leading financial organization, when the government liberalized its policies and allowed private sector banks to operate. The branch at Gwalior was established on November 13, 1995. Everybody bank was the first private sector bank to commerce its operations at Gwalior. The bank had the advantage of being the first and got good business. Subsequently, other private sector banks also opened their branches in Gwalior. Dinesh joined the branch as branch head in june-1998. His focus was to retain the leadership of the bank with improved profitability. He adopted a multi-programmed strategy which yielded good results during the three years of working. The bank not only continued to be a leader in private sector banks but also established nationalized banks. In 2001, it stood to the State Bank of India. Profitability also improved during these years. Dinesh had joined Everybody Bank in 1997, after serving more than 20 years in a leading nationalized bank. After serving for 1.5 years in other branches, he was posted at the Gwalior’s branch as the Branch head in June 1998. The new generation of banks was setup with a clear focus on the corporate sector during its initial phases. The Gwalior branch of everybody bank also had the same focus with 85 percent of total advances in the corporate sector and a residual 15 percent in the retail sector. Gradual opening up of the economy, and increasing competition, forced the corporate sector to improve the quality of services and to reduce the cost. In its search, the interest component gained focus and the corporate started looking for avenues to mobilize low cost funds. RBI also gradually reduced the bank rate resulting in reduction of the margin of profit, in the banks. The deposits of the Gwalior branch consisted of high cost funds, namely, certificate of deposits at the rate of 13-14 percent. The need of the hour was to collect the resources; therefore, all resources were tapped irrespective of their costs. Considering the reduction in the margin of corporate sector, the bank changed its focus from the corporate to the retail segment. It came up with the portfolio of schemes in the housing loans, car loans, educational loans, loan against demat shares and personal loans. It resulted in the increases of the share of retail segment from 15 percent to 50 percent and corresponding reduction in the corporate segment from 85 percent to 15

percent. The strategy resulted in the improvement of the margin of the bank to a level of 3-4 per cent. Another strategy adopted by the bank, with a view to reduce the cost of resources, was to concentrate on saving bank account and current account. With a view to tap the low cost funds, the strategy adopted was to setup a network of branches in various cities. In 1998, there was only one branch in the city and by the end of 2001 the number of ATMs across the city. The number of ATMs increased from one to five by 2001. They also came up with services like mobile banking, internet banking etc. Another important step taken by Dinesh in this direction was established high service standards. The complaints from the customers were taken up seriously. Also, schemes of performance linked increment/bonus were adopted. The performance expectations of the management were high. The bank also focused on all the areas of administrative cost very reduction. In this direction the staff requirement was reviewed and the class four positions were reduced. The arrangements with taxi operators: courier service companies were renegotiated for reducing the cost. For example, the courier cost per package was reduced from Rs. 30 to Rs. 15. The executives voluntarily decided to travel in the economy class and do not during the night, so as to avoid overnight stay charges. Although the not, the overtime allowances was permissible, but in order to reduce the cost, the practice of payment of overtime was stopped. These strategies resulted in saving of the bank, from Rs. 4.2 crores in 1998, to cover Rs 20 crores in 2001. Total deposits increased during these three years from Rs. 112 crores to 200 crores. The assets of the bank had increased from 100 crore in 1998 to 267 crore in 2001. In addition to this, 65 crores were sanctioned in a non-fund limit. Dinesh also concentrated on improving the quality of assets. The proactive approach of Dinesh resulted in the leading position of the branch during his tenure of three years as the bank, i.e. , business per employee was the highest amongst all the 65 branches of the bank and on the basis of profit per employee, the branch was ranked third. Achievements of Dinesh were appreciated by the management in the meeting. After returning to his headquarters, sitting in his chamber he has wondering as to what should be his future plan of action for further growth.

Questions:

1. Critically analyze the strategies adopted by Dinesh to retain the leading position.

2. What additional steps Dinesh could have taken to improve the profitability?