Big targets, performance-oriented bonuses force bank executives to use wrong methods (Economic Times )
Massive pressure to meet targets and performance-oriented bonuses could be the reasons for unethical practices indulged in by retail banking executives, say some bankers, reacting to a sting operation done by online magazine Cobrapost, alleging rampant money laundering by some private banks.
"Target-driven pressures do prompt people to resort to such unethical practices. But wherever there's slight flexibility in rules, people take advantage," the general manager in charge of treasury at a mid-sized public sector bank said, preferring to stay anonymous.
In nationalised banks, their own employees source business, but private banks sometimes go through agents who may not always follow rules. "But the moot thing is whenever the target pressure is humungous, the team is forced to show more business... and they may end up resorting to such things," the banker said.
Cobrapost on Thursday alleged that hundreds of hours of sting operations showed top three banks - ICICI Bank, HDFC Bank and Axis Bank- facilitate money laundering and suggest deals that violate laws. The banks, however, assured customers that they have high standards of business conduct and that they are investigating the allegations.
The sting operation alleges that the bankers, among other things, take cash and invest in gold and insurance products, open account to route cash into banks' investment schemes, don't adhere to KYC norms, stash away black money in bank lockers, and split money into tranches to get it into the banking system without being detected.
"Yes, one possible reason for resorting to unethical practices could be the high pressure on people to achieve numbers. Also, the systems, processes, rules and regulations are manned by people only and stiff targets might result in a tendency to circumvent the rules," said J Murugavel, a former banker with two leading banks, and now an assistant professor at management institute BIM, Trichy.
He said in most such cases, the norms are adhered to in letter, but not in spirit. "Stiff targets and performance-linked bonuses may be causing people to cross the rubicon. Further, adherence to explicit rules can be monitored, but adherence to the spirit is difficult to monitor," he said. "As for money getting stashed in lockers, as the relationship between the banker and a customer is one of a lessor and lessee, a banker need not know and can also claim that bank is not aware of the contents."
In 2011, some foreign bank officials were allegedly involved in duping wealthy clients. A Standard Chartered wealth manager had sold debentures of real estate firms and a Delhi-based education company to investors, who were attracted by the buyback option, something not allowed under current regulations, and higher returns.
They had to compensate the investors. This incident occurred after a rogue banker at Citi duped wealthy investors of about Rs 500 crore. The mastermind of the Citi fraud, Shivraj Puri, used clients' money to take positions in stocks and derivatives by selling a fraudulent investment scheme.
After 43 years of bank’s nationalization and 21 years of adoption of policy of liberalization and reformation launched in the year 1991,our government and our learned Finance Minister has realized for the first time, the bad consequences of imposition of targets for deposit and advances on CMDs of banks. It is undoubtedly and undeniable true that due to unrealistic targets there used to be unbearable pressure from seniors on field functionaries for its achievement.
And due to application of evil ways and means to reach nearer to target and due to unhealthy competitions among flatterer officers in reaching nearer to bosses, officials of banks during last three to four decades have in general lost a lot of its health, accumulated unimaginable volume of bad assets, created a gang of inefficient, non performers but cleaver, flatterer and corrupt workforce and eventually caused huge loss to the bank as also to its culture.
Bank officers who could manage illegal money in sanction of loans or through illegal ways and means could pay bribe in acquisition of deposits and also please their bosses to get timely promotion and best posting.
To read further click on following link
After 43 years of bank’s nationalization and 21 years of adoption of policy of liberalization and reformation launched in the year 1991,our government and our learned Finance Minister has realized for the first time, the bad consequences of imposition of targets for deposit and advances on CMDs of banks. It is undoubtedly and undeniable true that due to unrealistic targets there used to be unbearable pressure from seniors on field functionaries for its achievement.
And due to application of evil ways and means to reach nearer to target and due to unhealthy competitions among flatterer officers in reaching nearer to bosses, officials of banks during last three to four decades have in general lost a lot of its health, accumulated unimaginable volume of bad assets, created a gang of inefficient, non performers but cleaver, flatterer and corrupt workforce and eventually caused huge loss to the bank as also to its culture.
These top ranked officers could get the top post only and mostly by indulging in window dressing during their posting at branches or in the regions and it is they who used to teach same window dressing to their juniors and award only those officers who were clever in following their line of action even at the cost of overall health of banks. It is they who taught juniors to compromise quality in lending as also in deposits.
Bank officers who could manage illegal money in sanction of loans or through illegal ways and means could pay bribe in acquisition of deposits and also please their bosses to get timely promotion and best posting.
To read further click on following link
It all begins when govt starts instructing banks what to do for serving their purpose. Result? these kind of practices. Neither this is good for banks nor for economy
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