Tech-banking: Adopting industry-wide integrated technology

Bank is the custodian of public deposit. People deposit their hard-earned savings with the bank. Hence, it is the prime responsibility of the deposit taking bank to guarantee the safe and timely return of depositors' money whenever demanded. Although primary guarantee against depositors' money comes from the bank, secondary and ultimate guarantee is required from somewhere else. Banks do business like all other business entities, still it may fail naturally. In the event of a bank's failure, the secondary and ultimate guarantor will compensate the depositors to the extent of the amount guaranteed.
In our country, deposit up to Taka 100,000 is considered as guarantee under the central bank's deposit guarantee scheme. Probably, this deposit guarantee cap has been adopted from Pakistani regime when built-in value of this amount was very high and very few people were able to save this amount of money. Now the scenario has got changed. The country has got developed tremendously and value of this small sum is almost nothing mentionable. Even Tk 10-million deposit is not that big these days, because there are millions of people who might have saved more than the said amount.
Easy access to bank and good return on bank deposit has substantially increased the amount of deposit per person or family. Besides, rising income generation capacity, massive self-employment opportunity, future uncertainty, lack of universal pension plan have immensely motivated people to save more. At the same time, risk of depositors' money will be exposed more with the presence of more banks and the banks with weak fundamentals. Apart from this, many non-banking financial institutions (NBFIs) and informal institutions are allegedly taking deposits from innocent people and many of them are even being deceived.
Some financial scandals have already been reported. So, time has come to uphold people's propensity to save and safeguard their deposit as well. Introducing deposit insurance corporation (DIC) may actively be considered as a part of overall financial sector reform. Once the DIC is established, all banks, financial institutions and informal deposit-taking companies can be streamlined by bringing them under insurance scheme and as such depositors' money up to certain amount, to be determined based on the current socioeconomic condition, can be safeguarded.

CORPORATE GOVERNANCE: Corporate governance is one of the most important aspects of successfully running any organisation and enterprise. For the last 20 years, talks and discussions about corporate governance are taking place, but corporate governance in our managerial procedures is yet to be established duly. We cannot claim that the due role of Board of Directors (BoD), CEO and management/ executive committee has been properly determined and placed in black and white from reference and stringent compliance. As a result, our BoD does something that they are not supposed to do while the CEO does not do what he/she is supposed to do. Members of the management/ executive team are not aware of their conspicuous role, responsibility and accountability.
Apart from this, there is no specified prequalification required for becoming a Director of the bank, which is considered as one of the major weaknesses of corporate governance here. In our country, possessing a certain number of shares is the main and only qualification to become a member of the bank's BoD. So, any person regardless of his or her qualification and expertise can become Director of any bank only by dint of possessing required number of shares. This type of directorship may not be part of good corporate governance for the bank that requires special knowledge, expertise and experience.
This is more important for banking practice in our country; because the BoD has to perform many operational responsibilities, which, among others, include approval of loan proposal, conducting interview for appointment and promotion, approval of various expenditure etc. Without having adequate qualification, expertise and knowledge, even prudent adjudication cannot be provided to the credit proposal submitted to the bank. Similarly, members of the BoD would not be able to extend proper direction and guideline to the management team if they do not possess equivalent or higher competence of the management team.
Similarly, the role of a Managing Director (MD) is paramount in successfully running a bank. Therefore, emphasis must be given to the qualification of an MD. At present, only fifteen years of practical experience, including two years' role in 2nd tier position in a bank or financial institution, is considered as minimum qualification for a CEO to get appointed. However, mere experience of a certain number of years does not serve the purpose of appointing a competent person as the CEO. Because, only the required experience in core functional area of the bank can enable a CEO to successfully run the financial institution. Therefore, minimum required experience should be redefined clearly taking into consideration certain number of years' practical experience as Head of Credit, Head of Operation and direct experience in policy formulation. Even professional designation and credit of some continuous education should be added to the list of qualification as prerequisite to become MD/CEO of any bank or financial institution.
At the same time, specific role and responsibility of the management/executive team has to be well-defined and each member of the team should be well aware of their role and responsibility. Accountability of the management team and each member of it will have to be established based on the predefined role and responsibility. Specific punitive measure has to be clearly and unequivocally spelt out against any deviation and violation of the role and responsibility well-defined for the BoD, CEO and management/executive team.
COMPLIANCE IMPROVEMENT: Historically, the compliance area in our banking system is found very weak. To speak the truth, this area, although very crucial, has always been ignored. Audit departments have never been strengthened. Mostly retired officers, specially from the central bank, were reappointed under contractual agreement and given the responsibility of audit team. Regular employees, who were found nonperformer or were not in the good eye of the management, were posted to the department. As a result, dynamism has never been found in this department. Although special importance has been added to this department during the last 10 years with the establishment of Internal Control and Compliance Department, the result is not up to the mark.
In modern banking, a strong and independent internal control system is considered as the main watchdog of a bank. We have to keep in mind that the stronger the internal control, the lesser exposure of a bank to risk. Further, banking business is such a set of unique activities, which are carried out complying with multiple laws and acts. It is learnt that about 20 to 25 different laws and acts, in addition to innumerable circulars form regulators, are applied to banking business.
Apart from this, some international rules and regulations viz, International Chamber of Commerce (ICC) rules are also equally followed in banking business. Meticulous compliance of these rules, regulations and circulars are ensured through effective presence of a bank's internal control system. It is true that internal control has improved substantially - yet far below the standard. So this area needs to be looked into and appropriate measures must be taken to establish standard Internal Control and Compliance. At the same time, there must be specific guidelines with regard to appointing an external auditor and annual rating of the bank by a reputed rating agency.
TECHNOLOGICAL ADVANCEMENT: This is a technological era and modern banking is also called tech-banking. Technologies are moving very fast and banks in the developed countries are facing difficulty to cope up with the changing technologies. Every action in banking sector is being done using technology. And technology has reached such a level in the developed world that people can accomplish their entire activities staying inside the room. That means doing job and earning money and maintaining livelihood can easily be done without going outside months after months. This is not the end; the use of technology is rapidly changing as ATM (automated teller machine) is now too old while digital currency is getting popularity.
Our country is not lagging behind in the use of technology in banking activities. Massive popularity of mobile banking and introduction of bKash as tools of inward remittance are good examples of the use of modern technology in our banking. However, the industry has already suffered a setback from the weaknesses of the technology. Hence, further scope and opportunity of using technology will have to be established with properly addressing its limitations and challenges as well. Instead of adopting technology on a piecemeal basis, an industry-wide integrated technology based on common parameters, fundamentals and structure will have to be developed and adopted in the banking sector as a whole.

Nironjan Roy is a Toronto-based banker.
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