The Bangladesh Institute of Bank Management (BIBM) has recently conducted a survey on the country's banking industry where they have found that most banks are now considering reversing their decentralised pattern of banking operations. The survey reveals that during the period 1980-90, country's banking industry had undergone extensive decentralisation with the dual objectives of reaching banking business to remote areas and expediting services. It is learnt from the said survey report that from last thirty years of experience, most banks have realised that the decentralised banking operations have unleashed many fraudulent and corrupt practices. Therefore, they are actively thinking of retransforming their operations from decentralisation to centralisation. Media report published on releasing BIBM survey did not elaborate on what kind of banking operation will be centralised. However, it is understood that they were discussing about reducing banks' branch operations. This is definitely a very crucial decision not only for banks but for the country as a whole. This kind of decision will of course have adverse impact on the country's money market and the economic impetus as well. It is true that this is a mere opinion revealed in the survey. However, this kind of opinion regarding the country's banking sector may influence the concerned authorities to follow contractionary banking policy.
DECENTRALISATION VERSUS BUSINESS EXPANSION: Historically, effective decentralisation has never been done in our country's banking industry. In the name of decentralisation, branch banking network has been expanded across the country because this was part of government policy as regards state owned banks. During the last three decades, country's private sector banking has also tremendously developed, and emphasis was always there to expand banking operations in rural areas. Therefore, opening of any new branch in the urban area was allowed after opening a number of branches in rural areas which indicates that a bank has to always maintain a certain ratio between its rural and urban branches. However, expansion of this branch banking across the country does not represent bank's decentralisation process as branches have never been delegated any authority to make decisions at operational level. Except account opening and remittance activity which are mainly a standard set of work, there is no decision-making authority at branch level. Even many banks do not allow branch managements to approve loan against cash collateral security which is known as risk free lending. Technically, decentralisation of banking operation remains out of reach, so no question should arise about centralisation. However, it is an undeniable fact that following the expansion of branch banking across the country, more and more people have got easy access to banking services and at the same time, the scope and business opportunity of banks have widened substantially. This branch banking has played a very significant role in mobilising sustainable deposit what has eventually increased bank's loanable fund and as such helped in maintaining CRR & SLR (Cash Reserve Ratio / Statutory Liquidity Ratio). Branch banking has immensely contributed to improving loan portfolio as more and more small businesses and personal requirements have been financed from branch banking. Incidental activity viz. remittance, issuance of payment order (PO), utility bill payment, collection of various fees etc. rendered by the bank's branch operation has also contributed to bank's profitability. So, except some isolated incidents of fraud and corruption, branch operations have been running successfully. The alleged incidents of fraud and corruption were the result of bank's weak control and compliance deficiency. Although branches have not enjoyed delegation of power, their role in mobilising business is praiseworthy. In the absence of either effective centralisation or effective decentralisation, our country's banking industry has pursued a kind of ambiguous branch banking under which processing of banking transaction is partly done at branch level and partly at head office level. As for example, branch collects information of any client's remittance request, prepares the forms for onward submission to head office from where remitting instruction including subsequent reconciliation is executed. Similarly, borrowing customer is initially marketed by the branch where responsible officers primarily evaluate, assess and prepare loan proposal which is forwarded to head office for approval. This type of branch banking represents neither centralisation nor decentralisation. Therefore, before taking any decision on banks' current branch banking, precise definition on centralisation and banks' sales point should be derived first.
CENTRALISATION: Centralised operation should be clearly distinguished from sales activity. Executing every sales drive and processing of banking transaction has to be carried out from a central location. On the other hand, bank's sales drive should be taken to the close proximity of the customers. In order to mobilise substantial sales volume, bank's presence has to be made visible which can only be ensured by maintaining sufficient number of branches. Now banking is done through technology; so all banking operations or processing activities can be carried out from a central location using appropriate technology. Banks will have to maintain their central operation at their head office or some other locations which will be treated as part of the head office. For the sake of convenience and business volume, multiple central processing locations can be maintained. Various banking applications or web-based software will have to be developed and used in carrying out this centralised operational process. Some applications may allow access to the customers who will submit their requests through these applications. If third-party access to bank's system is required to be restricted, then the banker at branch level will collect request from customers and put those on the system to be automatically uploaded at the central processing area where the request will be validated and executed. In the same way, all other activities including loan disbursement, account opening, LC opening, issuance of bank guarantee etc. can easily be centrally processed. Centralisation has innumerable advantages as it expedites the process and electronically records all actions thereby reducing the scope of fraud and corruption.
POS: Now-a-days, banks' branches are known as point of sale (POS) from where only marketing initiative is carried out. However, dimension of branch and its operational periphery must be redefined and made simple. In fact, branches must be given the true status of POS whose main responsibility will be carrying out only marketing drives. So, effective centralisation will only be fruitful when branches perform the role of POS and all operational activities are centralised by using suitable computer technology.
Nironjan Roy is a banker based in Toronto, Canada.