Lending Policy: Human And Organisational Aspects

By Sujit Mundul

It is an ongoing debate if human and organisational aspects play a role in the formulation of lending policies of banks and financial institutions (BFIs). To my mind, it does and takes us to the human and organisational factors such as skills, attitudes, human equations and leadership. Policies are ever- evolving and these cannot be successfully implemented unless the issues in these areas are adequately taken care of and the right environment is set up. It is important to ensure adequate leverage to the operating executives at the industry level vis-a-vis the borrowing clientele including the prospective ones. To my estimation, the loan market should not become a buyers’ market pre-dominantly –this is likely to cause distortion in the financial system, leading to unhealthy competition amongst lenders.

 

Perhaps, the time has now come to give a thought about the need to break away from the clutches of exclusiveness of culture, tradition and folklore. Failing this, we run the risk of becoming more and more irrelevant to our times. There is an interesting anecdote: “Modern medical profession started emerging when practitioners stopped looking at traditional therapeutics and started looking at the patients.” Needless to say, every profession becomes so only on the strength of its professional knowledge. Therefore, the question arises – why not get away from vested interest in ‘Status Quo ante’ and understand the professional circumstances. The game of defence mechanisms against changing reality and irrelevant rationalising does not help in meeting the relevant pressures. Is it not a fact that our professional knowledge usually called “practical banking” is a pampered infant? Has it really grown beyond the traditional financing against assets? These questions are not easy to answer, particularly in countries where the economies are underdeveloped and slow in off take.

 

There is a school of thought who believes professional knowledge cannot be built-up and bought by outsiders. Hence, we will have to develop it within the BFIs. The outside specialists have no experience in banking. They can, at best, initiate and stimulate the process. If we need planning, the bankers will have to be planners; if we need credit analysts, the bankers will have to be the credit analysts, so on and so forth.

 

Another school of thought suggests that you need to hire professionals with expertise in specific areas required for modern banking which is vastly different from what we were used to, even a few years back. It has also been successfully proved in many markets that professionals from other industries have done extremely well in the banking sector. However, it depends on the nature of the market, state of the economy and the level of development. I think a combination of both i.e. developing own people depending on their individual strengths and hiring of professionals from relevant industries would be good to enhance the internal efficiencies and competitiveness. Trying to evade the problem today through inappropriate solutions would only end up compound the problems.

 

In this regard, I would like to discuss the three gaps that are evident even today, mostly in the under developed markets. One must take with a pinch of salt, the level of expertise in the developed markets which experienced a severe collapse only in the recent past. First, there could be a skill gap. Some improvements in work technology, systems and procedures will have to be worked out. Some external skills may be utilised to kick start and stabilise the process. Then the internally suitable resources could be brought to the fore front for leadership roles and further development in tandem with the market dynamics. This could also be replicated in the credit process and evaluation. The relatively junior professionals could be groomed at the right levels for their careers paths.

 

The second gap may be organisational in which roles may have to be modified. With the change in time, new and additional tasks have to be performed, and as such, appropriate man power at relevant points will be required to make available in a timely manner. For example, a branch manager cannot be expected to do every possible work one may think of. However, one needs to remain practical in order to utilise the limited supply of skills optimally. Regrouping of activities in some cases might help, particularly where skill requirements are similar.

 

The third is the generation gap. This is indeed a delicate matter involving internal conflicts of interest and response to change. When change brings about development of new technical skills, there is ground for clash between experience and these skills. It is more so when both the aspects are equally important. While experience, authority and probably power are bound to go with one generation, the newer skills involving pencil work, enthusiasm for and the time available to use them would go with the other generation. However, one thing is crystal clear: authority and responsibility shall have to go together. Responsibility for encouraging change lies only where the authority lies. In the real world, time fixes certain things. We can only decide what time horizon is relevant for us and which way do we play our roles.

 

It would be germane to mention in this context that countries like Nepal need sincere implementation of changes particularly in the financial sector. To be more specific, these are required in the process of credit evaluation, writing of credit policies and the bringing about of new products. These will certainly assist the development and maturity of the financial market. This will also assist Nepal in the process of integration with global financial markets and with the expanding markets of the two large neighbouring countries.

 

Nevertheless, the choice remains with us. We should take a pragmatic view of the fast developing world and adapt to the changes, first for survival and then for progress.

(Mundul is a Director with Standard Chartered Bank Nepal Ltd)