Module 2: Bank Management 2024-2025 PDF

Certified Professional in Cooperative Banking (CPCB)-Level-I Certification Course- 2024-25Batch Module 2: Bank Management 2024 Centre for Professional Excellence in Cooperatives (C-PEC), Banke...

Certified Professional in Cooperative Banking (CPCB)-Level-I Certification Course- 2024-25Batch Module 2: Bank Management 2024 Centre for Professional Excellence in Cooperatives (C-PEC), Bankers Institute of Rural Development (BIRD) Centre for Professional Excellence in Cooperatives (C-PEC), Bankers Institute of Rural Development (BIRD) An autonomous institute established by NABARD. Sector-H, LDA Colony, Kanpur Road, Lucknow – 226 012, INDIA Phone +91-522-2421799 Email [email protected] Homepage https://bird-cpec.nabard.org/  Disclaimer This book is meant for educational and learning purposes. The author of the book has taken all reasonable care to ensure that the contents of the book do not violate any existing copyright or other intellectual property rights of any person / institution in any manner. Wherever possible, acknowledgements / references have been given.  Table of Contents Unit 01: Role & Responsibilities................................................................................................ 1 Lesson No. 01: Fundamentals of Management..................................................................... 2 1.1.1 Definition of Management........................................................................................ 3 1.1.2 Management Quotes................................................................................................. 4 1.1.3 Leadership vs. Management..................................................................................... 5 1.1.4 Henri Fayol’s 14 Principles of Management............................................................ 7 1.1.5 Banks and Their Functions...................................................................................... 9 1.1.6 Augmented Bank Management Essentials............................................................. 11 1.1.7 Management of Rural Cooperative Credit Institutions in India....................... 15 1.1.8 Benefits of Effective Bank Management...............................................................20 1.1.9 Let us Sum-Up................................................................................................... 21 1.1.10 Check Your Progress.................................................................................... 22 1.1.11 References for Further Reading....................................................................... 24 Lesson No. 02: HR and Service Rules................................................................................. 25 1.2.1 Introduction........................................................................................................... 26 1.2.2 Managing Human Resources in Rural Cooperative Banks.................................... 26 1.2.3 Rules of conduct....................................................................................................28 1.2.4 Staff discipline....................................................................................................... 31 1.2.5 Discipline Management......................................................................................... 32 1.2.6 Domestic enquiry.................................................................................................. 34 1.2.7 Let us Sum-Up........................................................................................................ 37 1.2.8 Check Your Progress............................................................................................38 1.2.9 References for Further Reading........................................................................... 40 Lesson No. 03: House Keeping.......................................................................................... 41 1.3.1 House Keeping – Introduction............................................................................... 42 1.3.2 Need and Components of Proper House Keeping................................................. 42 1.3.2.1 Inter-office transactions...................................................................................... 42 1.3.2.2 Sundry and Suspense account............................................................................. 43 1.3.2.3 Internal Checks and Controls.............................................................................. 43 1.3.3 Cash Management................................................................................................. 52 1.3.4 Preservation of Records........................................................................................ 53 1.3.5 Training of Staff..................................................................................................... 54 1.3.6 Customer Service................................................................................................... 54  1.3.7 Let us Sum-Up....................................................................................................... 57 1.3.8 Check Your Progress............................................................................................ 58 1.3.9 References for Further Reading........................................................................... 60 Lesson No. 04: Reports and Returns - MIS........................................................................ 61 1.4.1 What is Management Information System?.......................................................... 62 1.4.2 Role of MIS in Banking Industry.......................................................................... 62 1.4.3 Types of returns...................................................................................................... 64 1.4.4 Analysis of Returns / Reports............................................................................... 70 1.4.5 Reporting by Rural Cooperative Banks to NABARD............................................. 71 1.4.6 Let us Sum-Up....................................................................................................... 76 1.4.7 Check Your Progress.............................................................................................. 76 1. 4.8 References for Further Reading.......................................................................... 78 Lesson No. 05: Lead Bank Scheme..................................................................................... 79 1.5.1 Lead Bank Scheme – Genesis........................................................................... 80 1.5.2 Objectives of Lead Bank Scheme and Functions of Lead Bank......................... 81 1.5.3 Governance Structures under Lead Bank Scheme............................................82 1.5.4 Implementation of Lead Bank Scheme..............................................................86 1.5.5 Review and Revamp of the LBS from time to time............................................89 1.5.6 Let us Sum-Up................................................................................................... 93 1.5.7 Check Your Progress.......................................................................................... 93 1.5.8 References for Further Reading........................................................................ 95 Unit 02: Organizational Behaviour......................................................................................... 96 Lesson No. 01: Individuals and Organisations.................................................................. 97 2.1.1 Introduction.....................................................................................................98 2.1.2 Behaviour Analysis at Different Levels..............................................................98 2.1.3 Causes of Individual Behaviour........................................................................ 99 2.1.4 Factors influencing an individual’s attitude.................................................... 100 2.1.5 Characteristics of the perceiver........................................................................... 103 2.1.6 Application of perception in management.......................................................... 104 2.1.7 Impacts of perception in the organization......................................................... 105 2.1.8 Let us Sum-Up..................................................................................................... 106 2.1.9 Check Your Progress........................................................................................... 106 2.1.10 References for Further Reading........................................................................ 107 Lesson No. 02: Communication....................................................................................... 109 2.2.1 Introduction.................................................................................................... 110 2.2.2 What is Communication?............................................................................... 110 2.2.3 Types of Communication.................................................................................. 111  2.2.4 Process of Communication............................................................................... 113 2.2.5 Barriers to communication..............................................................................114 2.2.6 Skills for Effective Communication..................................................................116 2.2.7 Let us Sum-Up................................................................................................. 117 2.2.8 Check Your Progress........................................................................................ 117 2.2.9 References for Further Reading....................................................................... 120 Lesson No. 03: Personality..........................................................................................121 2.3.1 Personality – Concept..................................................................................... 122 2.3.2 Determinants of Personality............................................................................ 122 2.3.3 Characteristics of Personality.......................................................................... 123 2.3.4 Development of Personality............................................................................. 124 2.3.5 Common Traits That Make a Good Character................................................. 126 2.3.6 Role efficacy in Employment........................................................................... 127 2.3.7 Let us Sum-Up................................................................................................ 128 2.3.8 Check Your Progress.......................................................................................... 128 2.3.9 References for Further Reading......................................................................... 130 Lesson No. 04: Inter-Personal Relationship............................................................... 131 2.4.1 What is Interpersonal Relationship?............................................................. 132 2.4.2 Why Interpersonal Relationships?...................................................................... 132 2.4.3 Types of Interpersonal Relationships.............................................................. 133 2.4.4 Interpersonal relationships in workplaces.......................................................... 133 2.4.5 Stages in the formation of effective interpersonal relationship.......................... 134 2.4.6 Factors affecting Interpersonal Relationship.................................................. 136 2.4.7 How to Improve Interpersonal Relationship at Workplace?.............................. 137 2.4.8 Let us Sum-Up................................................................................................ 138 2.4.9 Check Your Progress....................................................................................... 139 2.4.10 References for Further Reading....................................................................141 Lesson No. 5: Motivation................................................................................................. 142 2.5.1 What is Motivation?......................................................................................... 143 2.5.2 Importance of Motivation................................................................................ 143 2.5.3 Types of Motivation......................................................................................... 144 2.5.4 Motivation Process.......................................................................................... 145 2.5.5 Factors responsible for Staff Motivation......................................................... 145 2.5.6 Various theories on motivation....................................................................... 146 2.5.7 Let us Sum-Up.................................................................................................... 150 2.5.8 Check Your Progress........................................................................................... 151 2.5.9 References for Further Reading.......................................................................... 153 Unit 03: Profit Planning and Business Development............................................................ 154 Lesson No. 1: Branch as a Profit Centre.......................................................................... 155 3.1.1 Introduction........................................................................................................ 156 3.1.2 What constitutes profit in Banks?...................................................................... 157 3.1.3 Why Profit is necessary in any business............................................................. 157 3.1.4 Profitability and Viability of a Branch as a Profit Centre................................... 159 3.1.5 Transfer Price Mechanism.................................................................................. 163 3.1.6 Let us Sum-Up..................................................................................................... 167 3.1.7 Check Your Progress............................................................................................ 168 Lesson No. 2: SWOT and PESTLE Analysis...................................................................... 171 3.2.1 Introduction........................................................................................................ 172 3.2. 2 SWOT Analysis................................................................................................... 173 3.2. 3 STEP / PEST / PESTLE Analysis....................................................................... 178 3.2. 4 Let us Sum-Up................................................................................................... 181 3.2. 5 Check Your Progress.......................................................................................... 182 Lesson No. 3: Break-Even Analysis.................................................................................. 186 3.3.1 Concept of Break-Even Point (BEP)................................................................... 187 3.3.2 Deriving a Break-Even Point (BEP).................................................................... 187 3.3.3 When is Break-Even Analysis used......................................................................191 3.3.4 Benefits of Break-Even Analysis..........................................................................191 3.3.5 Sensitivity Analysis............................................................................................. 192 3.3.6 Let us Sum-Up..................................................................................................... 193 3.3.8 References for further Readings......................................................................... 195 Lesson No. 4: Developing Business Strategies.................................................................. 197 3.4.1 Introduction........................................................................................................ 198 3.4.2 Strategic Management Process............................................................................ 199 3.4.3 Why to adopt Business Development Strategies in Banks?............................... 201 3.4.4 Marketing Strategy for Banks..............................................................................205 3.4.5 Let us Sum-Up..................................................................................................... 207 3.4.6 Check your progress............................................................................................ 207 3.4.7 References for further reading............................................................................ 210 Unit 04: Use of Computers in Banking................................................................................. 212 Lesson No. 1: Introduction to Computers.................................................................... 213 4.1.1 Introduction..................................................................................................... 214 4.1.2 What is computer System?.............................................................................. 215 4.1.3 Characteristics of a Computer......................................................................... 215 4.1.4 Computer Generations..................................................................................... 216  4.1.5 Classification of Computers............................................................................. 218 4.1.6 Advantages of a Computer............................................................................... 221 4.1.7 Limitations of a Computer............................................................................... 221 4.1.8 What is Internet?................................................................................................. 222 4.1.9 Let’s us Sum-Up............................................................................................... 223 4.1.10 Check Your Progress........................................................................................ 223 4.1.11 References for Further Reading.................................................................... 226 Lesson No. 2: Components of Computers and their Functions.................................. 227 4.2.1 Introduction to Hardware and Software.........................................................228 4.2.2 Functional Components of a Digital Computer............................................... 231 4.2.3 Hardware Parts of a computer with their functions........................................ 233 4.2.4 Let us Sum-Up............................................................................................... 237 4.2.5 Check your Progress.........................................................................................238 4.2.6 References for Further Reading.................................................................... 241 4.3.1 Introduction..................................................................................................... 243 4.3.3 Types of Computer Operating Systems...........................................................244 4.3.4 Functions of Operating System.......................................................................250 4.3.5 Let us Sum-Up.................................................................................................... 251 4.3.6 Check Your Progress........................................................................................ 252 4.3.7 References for Further Reading....................................................................... 254 Lesson No. 4: Computerization and CBS Banking........................................................... 255 4.4.1 Introduction..................................................................................................... 256 4.4.2 Technology Products in a Banking Sector:.......................................................... 256 4.4.3 Types of Computers Used in Banks................................................................. 257 4.4.4 Types of Bank Computerisation.......................................................................... 258 4.4.5 Application Software used in Core Banking Solutions....................................... 260 4.4.5.2 Data Base server.............................................................................................. 262 4.4.6 Advantages of Core Banking Solutions................................................................264 4.4.7 National Financial Switch.............................................................................. 267 4.4.8 Let us Sum-Up.................................................................................................... 268 4.4.9 Check Your Progress.................................................................................... 268 4.4.10 References for Further Reading................................................................... 270  Unit 01: Role & Responsibilities Lesson No. 01 Fundamentals of Management Lesson No. 02 HR and Service Rules Lesson No. 03 House Keeping Lesson No. 04 Reports and Returns - MIS Lesson No. 05 Lead Bank Scheme 1 Lesson No. 01: Fundamentals of Management 1.1.1 Definition of Management 1.1.2 Management Quotes 1.1.3 Leadership vs Management 1.1.3.1 Major differences between Leaders and Managers 1.1.4 Henri Fayol’s 14 Principles of Management 1.1.5 Banks and their Functions 1.1.5.1 General Functions of Banks 1.1.5.2 Origin and Evolution of Banks 1.1.5.3 Signals of Further Change 1.1.5.4 Priorities for Future of Retail Banking In India 1.1.6 Enhanced Management Essentials for Indian Banks 1.1.6.1 Factors compelling superior Bank Management Skills 1.1.6.2 Enhanced need for Specialised Management Functions 1.1.6.3 Levels and Functions of Bank Management 1.7 Rural Cooperatives and Cooperative Credit 1.1.7.1 Cooperatives and Underlying Seven Basic Principles 1.1.7.2 Cooperative Credit Structure in India 1.1.7.3 Regulatory Control over Rural Cooperative Banks (RCBs) 1.1.7.3.1 Banking Regulation Act, 1949 (AACS) 1.1.7.3.2 Banking Regulation (Amendment) Act, 2020 1.1.8 Benefits of Effective Bank Management 1.1.9 Let us Sum-Up 1. 1.10 Check Your Progress 1.1.11 References for Further Reading 2 1.1.1 Definition of Management Management is an art of combining the efforts and resources to accomplish a task. If we look into the dictionary definition of management, there are many kinds of explanations but all revolve around accomplishing of work / tasks in and by a group. Generally management definitions are more in depth and tailored toward Business Management. “Management” (from old French ménagement “the art of conducting, directing”; from Latin manu agere “to lead by the hand”) characterises the process of leading and directing all or part of an organization, often a business through deployment and manipulation of resources (human, financial, material, intellectual or intangible) Source : en.wikipedia.org/wiki/Management. Some of the definitions given hereunder can clear up the basic idea and implications to discuss the topic further:  A process of getting activities completed efficiently with and through other people.  The process of planning, leading, organizing and controlling people within a group in order to achieve goals. This definition stresses the activities that are necessary for reaching particular goals.  The guidance and control of action required to execute a program. This implies that, for management to be effective, there needs to be some type of defined approach or system in place. This system becomes the plan and management is guiding others in following that plan.  Management functions are not limited to managers and supervisors. Every member of the organization has some management and reporting functions as part of their job. It consists of a sequence of continuing cycle of three primary activities : a) Establishment of a plan-that becomes the road map for the work to be done. b) Allocation of resources-to implement the plan. c) Measurement of results-to compare end product with that originally envisioned. This definition of management focuses on management as a process of accomplishing work through efforts of others. In other words, effective coordination and utilization of resources, such as capital, plant, materials, and labour helps to achieve defined objectives with maximum efficiency. Skilled managers can accomplish much more through others than they can through their own single efforts. To conclude, it is the 3 process of achieving the objectives of a business entity by bringing together human, physical and financial resources in an optimum combination and making the best decision while taking into consideration its operating environment. 1.1.2 Management Quotes  The conventional definition of management is getting work done through people, but real management is developing people through work. ~ Agha Hasan Abedi  Effective leadership is putting first things first. Effective management is discipline, carrying it out. ~ Stephen Covey  Management is efficiency in climbing the ladder of success; leadership determines whether the ladder is leaning against the right wall. ~ Stephen Covey  Management is doing things right, leadership is doing the right things. ~ Unknown  Leadership is working with goals and vision; management is working with objectives. ~ Russel Honore  Good management is the art of making problems so interesting and their solutions so constructive that everyone wants to get to work. ~ Paul Hawken  Lots of folks confuse bad management with destiny. ~ Kin Hubbard  Good management consists of showing average people how to do the work of superior people. ~ John D. Rockefeller  No business in the world has ever made more money with poorer management. ~ Bill Terry  A manager is who finds the right people for the right jobs. Management is matching those individuals with the right positions. ~ Marcus Aurelius  A good manager is a man who isn’t worried about his own career but rather the careers of those who work for him. ~ HSM Burns  Management by objectives works – if you know the objectives. Ninety percent of the time you don’t. ~ Peter Drucker  The first rule of management is delegation. Don’t try and do everything yourself because you can’t. ~ Anthea Turner  Divorced from ethics, leadership is reduced to management and politics to mere technique. ~ James MacGregor Burns  Management's job is to convey leadership's message in a compelling and inspiring way. Not just in meetings, but also by example. ~ Jeffrey Gitomer 4 1.1.3 Leadership vs. Management Leadership and management are often considered to have overlapping functions. While this can be true, these two terms have different meanings and they shouldn’t be used interchangeably. Both imply a unique set of functions, characteristics and skills that share similarities. A manager is selected based on specific technical skills, knowledge and expertise. On the contrary, the greatest leadership skill is to influence and inspire people. Leadership is about developing what the goals should be. It’s more about driving change. Management is the process of working with others to ensure the effective execution of a chosen set of goals. A lot of leaders know what they want from the people they lead, but are not particularly skilled in getting the desired results. Often, leaders in this position end up blaming the people they lead. If their ideas are implemented, it will be done by another leader who embraces the management function. Management is often an art of taking abstract concepts and communicating them in a clear, quantitative way. Management skills are a subset of leadership skills. Leaders have a vision, a goal and a sense of purpose, but the ability to plan and execute is with managers only. A leader is someone who knows where to go. Management skills are how they actually get there. Top 10 Management Skills Top 10 Leadership Skills 1. Interpersonal skills 1. Communication 2. Communication 2. Courage and Motivation 3. Honesty and Confidence 3. Delegation and Cooperation 4. Decisiveness and Organization 4. Positivity 5. Delegation 5. Integrity and Trustworthiness 6. Forward planning 6. Vision and Creativity 7. Strategic thinking 7. Feedback 8. Problem-solving 8. Responsibility 9. Commercial awareness 9. Focus and Commitment 10. Mentoring and Empathy 10. Flexibility 5 1.1.3.1 Major differences between Leaders and Managers While management is an important part of leadership, the reverse may not necessarily be true. Leadership and management are often considered to have overlapping functions. While this can be true, these two terms have different meanings and they shouldn’t be used interchangeably. Both imply a unique set of functions, characteristics and skills that share similarities. However, they show prominent differences in some circumstances. For example, some managers do not practice leadership, while some people lead without a managerial role. Leaders Set the Vision, Managers Follow It: Leaders are visionaries. Most of them have a clear vision of where they want their organizations to be in the future. However, they themselves are not the only ones responsible for making that vision come true. Managers are responsible for keeping employees aligned with the core company values and goals. Leaders coach and managers direct. Leaders Think Ideas, Managers Think Execution: Leaders are more about looking for opportunities for improvement on the organizational level. In other words, leaders look for answers to “what and why - what should be done”, while managers always look for answers to “how and when - how things get done”. Leaders create a vision while managers create goals. Leaders Build Relationships, Managers Build Systems and Processes: Leaders have a great power to inspire and focus on people. They know who their stakeholders are and spend most of their time with them. Managers focus on the structures necessary to set and achieve goals. They focus on the analytical and ensure systems are in place to attain desired outcomes. Leaders Look in the Future, Managers Work in the Present: the manager’s most important goal is to achieve organizational goals by implementing processes and procedures around budgeting, organizational structuring, and staffing. On the other hand, leaders tend to think ahead and capitalize on future opportunities. Leaders Shape the Culture, Managers Endorse It: Culture is a system of values, beliefs and behaviours that shape and determine how an organization operates and how the work gets done. 6 Leaders Take Risks, Managers Control Risk: Leaders are willing to try new things even if they may fail miserably. They know that failure is often a step on the path to success. Managers work to minimize risk. They seek to avoid or control problems rather than embracing them. 1.1.4 Henri Fayol’s 14 Principles of Management During last centuries, organizations such as production factories had to deal with management in practice. At that time there were not many external management tools, models and methods available. Jules Henri Fayol, a French coal-mining engineer, explored this comprehensively and as a result, he synthesized the 14 principles of management. He published his principles of management and research in a book ‘General and Industrial Management’ (1916). These 14 principles of management hold valid and are used even today to manage an organization and are beneficial for prediction, planning, decision-making, organization and process management, control and coordination. i. Division of Work- Henri believed that segregating work in the workforce amongst the worker will enhance the quality of the product. Similarly, he also concluded that the division of work improves the productivity, efficiency, accuracy and speed of the workers. This principle is appropriate for both the managerial as well as a technical work level. ii. Authority and Responsibility- These are the two key aspects of management. Authority facilitates the management to work efficiently and responsibility makes them responsible for the work done under their guidance or leadership. iii. Discipline- Without discipline, nothing can be accomplished. It is the core value for any project or any management. Good performance and sensible interrelation make the management job easy and comprehensive. Employees good behaviour also helps them smoothly build and progress in their professional careers. iv. Unity of Command- This means an employee should have only one boss and follow his command. If an employee has to follow more than one boss, there begins a conflict of interest and can create confusion. 7 v. Unity of Direction- Whoever is engaged in the same activity should have a unified goal. This means all the person working in a company should have one goal and motive which will make the work easier and achieve the set goal easily. vi. Subordination of Individual Interest- This indicates a company should work unitedly towards the interest of a company rather than personal interest. Be subordinate to the purposes of an organization. This refers to the whole chain of command in a company. vii. Remuneration- This plays an important role in motivating the workers of a company. Remuneration can be monetary or non-monetary. However, it should be according to an individual’s efforts they have made. viii. Centralization- In any company, the management or any authority responsible for the decision-making process should be neutral. However, this depends on the size of an organization. Henri Fayol stressed on the point that there should be a balance between the hierarchy and division of power. ix. Scalar Chain- Fayol on this principle highlights that the hierarchy steps should be from the top to the lowest. This is necessary so that every employee knows their immediate senior also they should be able to contact any, if needed. x. Order- A company should maintain a well-defined work order to have a favourable work culture. The positive atmosphere in the workplace will boost more positive productivity. xi. Equity- All employees should be treated equally and respectfully. It’s the responsibility of a manager that no employees face discrimination. xii. Stability- An employee delivers the best if they feel secure in their job. It is the duty of the management to offer job security to their employees. xiii. Initiative- The management should support and encourage the employees to take initiatives in an organization. It will help them to increase their interest and make then worth. xiv. Esprit de Corps- It is the responsibility of the management to motivate their employees, be supportive of each other and remain united. Developing trust and mutual understanding will lead to a positive strength and united work environment. 8 1.1.5 Banks and Their Functions 1.1.5.1 General Functions of Banks A bank is a financial institution which accepts deposits, pays interest on pre-defined rates, clears cheques, makes loans, and often acts as an intermediary in financial transactions. It also provides other financial services to its customers such as wealth management, investment services, currency exchange, safe deposit boxes and more. An indicative list of services offered by Indian Banks is as under:  Deposits, Payments and Remittance Services  Loans and Overdrafts  Currency Exchange  Financial Consultancy  Online Banking  Mobile Banking  Home Banking  Credit and Debit Cards  Lockers  Money Transfers  Investment Banking  Wealth Management  Several auxiliary services - guarantees, solvency certificates, MFs, insurance, etc. Bank management refers to the process of managing all the above statutory activities with a view to profit. 1.1.5.2 Origin and Evolution of Banks The origin of bank or banking activities can be traced to the Roman Empire during the Babylonian period. It was being practiced on a very small scale as compared to modern day banking and frame work was not systematic. It has evolved from barbaric banking where commodities were loaned to modern day banking system, which caters to a wide range of financial services. The evolution of banking system was gradual with growth in each and every aspect of banking. Banking system has witnessed unprecedented 9  growth and will be undergoing it in future too with advent and advancement in technology. In the banking industry of India, there has been extraordinary growth that has replaced traditional banking methods with simplified, accurate, and fast banking methods. Today, we have a fairly well-organized and highly sophisticated banking system that includes new-generation banks along with traditional banks. 1.1.5.3 Signals of Further Change Retail banking is facing an even more complex environment than before. While the COVID-19 pandemic has reshaped the socio-economic landscape, customers’ needs and expectations continue to evolve. Here are various signals showing the need for further change in the retail banking industry.  Customers: Accelerating customer expectations have shifted the banks’ priorities. Banks that can deliver seamless and personalized customer experiences will be best placed and will grow their market share.  Competitive: The existing banks are being challenged by Neo banks and other non- traditional participants. The customers will turn to such alternative providers if their needs are met more effectively.  Economic: The adverse economic headwinds of a pandemic will challenge retail banking margins. It is causing retail banks to improvise and expand their current mode of operations to digital platforms and other available options to achieve profitable growth.  Regulatory: Retail banks will need to consider how well they are organized to comply with regulations focused on increasing competition, supporting vulnerable customers, greater resilience, and increased cyber security.  Technological: Banks will need to invest in current technologies to enable profitable growth and substantially reduce the cost of operations through automated processes. 1.1.5.4 Priorities for Future of Retail Banking In India The traditional banking business model is simply not viable for the holistic growth of the economy. Banks need to take a stance against the future landscape and 10 uncertainties, so here are priorities for the future of retail banking that will take India a step closer to full financial inclusion. Customer-Centric Business Model: Banks will organize themselves according to their customers instead of products or channels. They will recognize their customers’ uniqueness and will tailor their offerings to meet their needs rather than pushing their products. Social Media Will Be the Media: In the future of retail banking, social media will be the primary medium to connect, engage, inform and understand the customers’ behaviour. It will also be a platform where customers would research and compare banks’ offerings. Customer Relationship: Enhancing customer trust is the foremost investment priority for the retail banking sector. Customers want their banks to be socially responsible. Banks will remarkably benefit by taking a leadership role in the public debate. Banks will inform and educate society on basic financial skills, economics and the fundamental benefits of banking. Cyber Security: Cyber security is crucial to maintaining long-term customer relationships because customers are growing more concerned about data privacy and security as their personal information and financial life migrate online. Banks need to develop strategies that are aligned with their business requirements, risk- management protocols and regulatory requirements. Business Process Outsourcing: Outsourcing various retail banking processes through Customer Service Point would save time and cost of operations. Besides, it will help banks in concentrating on core business areas. Banks will devote more time to marketing, brand building, and customer services. 1.1.6 Augmented Bank Management Essentials The financial services industry including retail banking is undergoing dramatic changes because of rapidly changing customer behaviour, increasing expectations, channel proliferation, disruption, innovation, and new technologies. All this calls for bank management, which further ensures quality service to customers and a win-win situation between the customer, the banks and the government. 11 1.1.6.1 Factors compelling superior Bank Management Skills Some of the recent trends in the banking and financial sector of India and all these new technologies are predicting a reshape in the banking industry environment. The future is going to bring upon a revolution of sorts with historical changes in traditional models. The massive shift in the landscape has few challenges. Meanwhile, the competition from the foreign and private sector banks have strained the government regulators, nationalized banks and financial institutions to adopt new technology in order to stay relevant in the race. Some of the key areas undergoing faster changes in Indian banking that need the comparable superior management adoptions to remain competitive are: Digitization: Reduced cost of various banking procedures, improved revenue generation and reduced human error. Along with increased customer satisfaction, it has enabled the customers creating personalized solutions for their investment plans and improve the overall banking experience. Enhanced use of Mobile Banking: one of the most dominant current trends in banking systems. UPI (Unified Payments Interface): It enables secure and instant inter-bank transactions with direct involvement of RBI and NPCI. Block Chain: Block chain is the latest buzzword. The technology that works on the principles of computer science, data structures and cryptography and is the core component of crypto currency is said to be the future of banking and financial services globally. Block chain uses technology to create blocks to process, verify and record transactions, without the ability to modify it. Artificial Intelligence Robots: Several private and nationalized banks in India have started to adopt chatbots or Artificial intelligence robots for assistance in customer support services. Also, it can recognize fraudulent behaviour, collate surveys and feedback and assist in financial decisions. Rise of Fintech Companies: Previously, banks considered Fintech companies a disrupting force. Besides easy access, these companies have led to a massive improvement in services, customer experience, and reduced price. 12 Digital-Only Banks: With the entire banking and financial services industry jumping to digital channels, digital-only banks have emerged to create paperless and branchless banking systems. This is a new breed of banking institutions that are overtaking the traditional models rapidly. These banks can be accessed on mobile, computers, and tablets. The growing popularity of these banks is said to be a real threat to traditional banks. Cloud Banking: Use of cloud-based technology means improved flexibility and scalability with increased efficiency and easier integration of newer technologies and applications, faster services and solutions, and improved data security. In addition, the banks will not have to invest in expensive hardware and software as updating the information is easier on cloud-based models. Biometrics: With a combination of encryption technology and OTPs, biometric authentication is forecasted to create a highly-secure database protecting it from leaks and hackers attempts. Wearables: With smart watch technology, the banking and financial would be just a click on a user-friendly interface on their wearable device. 1.1.6.2 Enhanced need for Specialised Management Functions Concerns and elements of entrepreneurship culture in general and banking system broadly include: liquidity management, asset management, liability management and capital management. Reliability of the bank management is determined by the following characteristics:  Management expertise in strategic analysis, planning, policy development and management functions  Quality planning for financial resource generation and their effective utilisation  Asset and Liability Management  Capital Management  Liquidity Management  Risk Management (Credit, Market, Operational, Interest Rate, Currency and Capital risks)  Management of Human Resources 13  Creation of control systems: audit and internal audit , monitoring of profitability and risks liquidity  Unified information technology system: integrated automation of workflow, accounting, current analysis and control, strategic planning 1.1.6.3 Levels and Functions of Bank Management Cooperatives are special type of institutions that have to combine the credit business objectives with social objective and reflect the principles of democratic control. Top level management: Top management (the Board of Directors) is the ultimate authority in a bank. It finalizes the overall objectives and formulates the master strategy and broad business policies. It also evaluates the result of the efforts of all other managers and personnel. The chief executive at the top-level management may be the General Manager/Managing Director. He/she issues instructions for implementation of policies formulated by the Board of Directors and takes all necessary steps to accomplish the objectives. The main functions of top level management are:  Determining the business objectives  Formulating business policies and preparation of plans for the objectives  Designing an appropriate organizational framework  Bringing together the resources to put plans into practice  Exercising effective supervision over all the departments  Introducing suitable remedial measures if shortfalls are noticed. Middle level Management: The middle management comprises of heads of departments such as Senior Manager/Dy. Manager. Middle level managers are expected to understand and support /execute the ideas and policies of the top management. They have to face the pressure of the supervisory staff reporting to them. The main functions of middle level management are:  Selection of the efficient executive and staff  Introduction of proper procedures and systems  Deciding the routine for orderly functioning of the departments  Motivating personnel for higher productivity and rewarding them 14  Collecting reports and statistical information and similar other records about the work done in the department and forwarding the same with necessary observations to the top-level management  Ensuring better performance by revising departmental policies Lower level Management: The lower level management includes supervisors and sub-department executives assisted by workers and clerks. Their authority is limited. They have to abide by the decisions taken by the higher levels of management and are also accountable to their superiors. The plans and policies of the top-level management may fail, if the supervisors and workers do not provide wholehearted support and cooperation. The managers at the lower level play an important role in raising the morale of subordinate staff as they are directly and closely connected with their subordinates. The lower level managers need technical and supervisory skills in order to get the work done from their subordinates. The main function of lower level management is:  Directing and supervising the entire work force in the office and in the sales field.  Acting as a link between the higher management and rank and file of workers.  Communicating the management’s decisions and policies to workers  Reporting actual performance of the workmen along with their difficulties and problems to the higher level management.  Maintaining discipline among workers assigned to them or to their departments. 1.1.7 Management of Rural Cooperative Credit Institutions in India Cooperative movement in India was started primarily for dealing with the problem of rural credit. The history of Indian cooperative banking started with the passing of Cooperative Societies Act in 1904. The objective of this Act was to establish cooperative credit societies “to encourage thrift, self-help and cooperation among agriculturists, artisans and persons of limited means.” Many cooperative credit societies were set up under this Act. The Cooperative Societies Act, 1912 recognized the need for establishing new organizations for supervision, auditing and supply of cooperative credit. These organizations were —  A union of people - consisting of primary societies – however, agricultural credit institutions dominated the entire cooperative credit structure (PACS); 15  Central Cooperative Banks at district levels; and  State Cooperative Banks at provincial levels As the word “Cooperative” indicates, control and operational management remains with the people or its members. Before going into regulatory aspects, confusing due to duality of control and financial discipline enforced by Govt. of India in September 2020, we should learn first about basic cooperative principles as applicable throughout the world in following paragraph. 1.1.7.1 Cooperatives and Underlying Seven Basic Principles Cooperatives around the world operate according to the same set of core principles and values, adopted by the International Co-operative Alliance (ICA) with its Headquarters in Geneva. Cooperatives trace the roots of these principles to the first modern cooperative founded in Rochdale, England in 1844. These principles are clearly visible in the definition of “Cooperatives” given by ICA in 1995. It defines Cooperatives as - an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly owned and democratically controlled enterprise. Seven Cooperative Principles are: i. Open and Voluntary Membership - Membership in a cooperative is open to all people who can reasonably use its services and stand willing to accept the responsibilities of membership, regardless of race, religion, gender, or economic circumstances. ii. Democratic Member Control - Cooperatives are democratic organizations controlled by their members, who actively participate in setting policies and making decisions. Representatives (directors/trustees) are elected among the membership and are accountable to them. In primary cooperatives, members have equal voting rights (one member, one vote); cooperatives at other levels are organized in a democratic manner. iii. Members’ Economic Participation - Members contribute equitably to, and democratically control, the capital of their cooperative. At least part of that capital remains the common property of the cooperative. Members allocate surpluses for any or all of the following purposes: developing the cooperative; setting up reserves; 16 benefiting members in proportion to their transactions with the cooperative and supporting other activities approved by the membership. iv. Autonomy and Independence - Cooperatives are autonomous, self-help organizations controlled by their members. If they enter into agreements with other organizations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control as well as their unique identity. v. Education, Training, and Information - Education and training for members, elected representatives (directors/trustees), CEOs, and employees help them effectively contribute to the development of their cooperatives. Communications about the nature and benefits of cooperatives, particularly with the general public and opinion leaders, help boost cooperative understanding. vi. Cooperation among Cooperatives - By working together through local, national, regional and international structures, cooperatives improve services, bolster local economies and deal more effectively with social and community needs. vii. Concern for Community - Cooperatives work for the sustainable development of their communities through policies supported by the membership. 1.1.7.2 Cooperative Credit Structure in India The rural co-operative credit system in India is primarily mandated to ensure flow of credit to the agriculture sector. It comprises short-term and long-term co-operative credit structures. The short-term co-operative credit structure operates with a three- tier system - Primary Agricultural Credit Societies (PACS) at the village level, Central Cooperative Banks (CCBs) at the district level and State Cooperative Banks (StCBs) at the State level. PACS are outside the purview of the Banking Regulation Act, 1949 and hence not regulated by the Reserve Bank of India. StCBs/DCCBs are registered under the provisions of State Cooperative Societies Act of the State concerned and are regulated by the Reserve Bank of India. 17 Primary Cooperative Banks (PCBs), also referred to as Urban Cooperative Banks (UCBs), cater to the financial needs of customers in urban and semi-urban areas. UCBs are primarily registered as cooperative societies under the provisions of either the State Cooperative Societies Act of the State concerned or the Multi State Cooperative Societies Act, 2002 if the area of operation of the bank extends beyond the boundaries of one state. The sector is heterogeneous in character with uneven geographic spread of the banks. While many of them are unit banks without any branch network, some of them are large in size and operate in more than one state. 1.1.7.3 Regulatory Control over Rural Cooperative Banks (RCBs) In India, the cooperative credit business is assigned to credit societies and non-credit business is assigned to various types of functional societies. The lower tier, namely the primary credit societies are allowed to undertake both credit and non-credit functions. The credit business of the higher tier is restricted to credit only and they are licensed as ‘banks’ and regulated under Banking Regulation Act, 1949 (As Applicable to Cooperative societies). Thus the functions of a “society” are different from that of “banks”. However, the banks are handled administratively like that of society because they are registered as societies but regulated as banks. This duality is the main cause of weakness of today’s cooperative credit system. This lack of delineation in administration and regulation has been continuing for long without adequate resolution. 1.1.7.3.1 Banking Regulation Act, 1949 (AACS) : Though the Banking Regulation Act came in to force in 1949, the banking laws were made applicable to cooperative 18 societies only in 1966 through an amendment to the Banking Regulation Act, 1949. Section 56 of the BR Act specifically refers to provisions applicable to cooperative banks. Since then, there is duality of control over these banks with banking related functions being regulated by the Reserve Bank and management related functions regulated by respective State Governments/Central Government. The Reserve Bank regulated the banking functions of StCBs/DCCBs/UCBs under the provisions of Sections 22 and 23 of the Banking Regulation Act, 1949 (As Applicable to Cooperative Societies (AACS). Powers have been delegated to National Bank for Agricultural and Rural Development (NABARD) under Sec 35 (6) of the Banking Regulation Act (As Applicable to Cooperative Societies) to conduct inspection of State and Central Cooperative Banks. 1.1.7.3.2 Banking Regulation (Amendment) Act, 2020 : Banking activity is a restrictive and licenced activity in India. Section 5(b) of BR Act, 1949 defines “Banking” as “banking” means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawal by cheque, draft, order or otherwise”. Since PACS are dealing with their members for the purpose of deposit and lending, they were not considered under the purview of BR Act, 1949. However, DCCBs and StCBs are directly accepting deposits from anybody including public, pressure has always been mounted by RBI to bring them under their regulatory control in order to make applicable various directions issued for the safety of public deposits and other inter-bank transactions. The Central Government on September 28, 2020 has issued the Banking Regulation (Amendment) Act, 2020 to further amend the Banking Regulation Act, 1949. [Bill No. 39 of 2020]. The amendment was made with the objective to bring the co-operative banks on par with the developments in the banking sector through better management and proper regulation of co-operative banks. This would ensure that the affairs of the co-operative banks are conducted in a manner that protects the interests of the depositors. It is further proposed to strengthen the co-operative banks by increasing professionalism, enabling access to capital, improving governance and ensuring sound banking through the Reserve Bank of India. The Central Government by Notification dated 29 June 2020 also made provisions of Banking Regulation (Amendment) Ordinance, 2020 to Primary Urban Cooperative Banks and by Notification dated 23 December 2020 made provisions of Banking Regulation (Amendment) Act, 2020 19 applicable to DCCBs and StCBs with effect from 01 April 2021. Major changes of above amendments are:  Fit and Proper Criteria were issued by RBI for Board of Directors and also for appointment of CEO of Rural Cooperative Banks.  Supersession of the Board has to be approved by RBI.  RBI will be empowered for approval of the auditors for Rural Cooperative Banks.  Appointment of Chairman and CEO and supersession of Board of Directors of Cooperative Banks is to be done with the approval of RBI. It empowers RBI to remove the Chairman if he is not fit and proper and appoint a suitable person if the bank does not do so.  Regulation of acquisition of shares or voting  Prohibition of common Director  Maintenance of assets in India by the banking company  Procedure for amalgamation/ reconstruction of banking companies  Procedure for winding up including appointment of liquidator  RBI, if it feels necessary, can ask the bank to call a meeting of its directors, depute its officers to this meeting, examine bank’s functioning and can make management related changes.  The banks will have to furnish the audit report and returns to RBI/NABARD within 3 months from the end of year instead of 6 months earlier. In nutshell, Rural Cooperative Banks have been brought more nearer to normal commercial banks in as far as bank management and operational control is concerned. Though, powers to command RCBs may remain with the RCS, but RBI’s approvals and other corrective initiations will carry larger weight now. 1.1.8 Benefits of Effective Bank Management Banking business is run on commercial lines. Practically, there is no difference between SBI and a Rural Cooperative Bank in as far as banks’ operational and functional aspects are concerned except that its Board is constituted and functioning on a cooperative basis. An effective management of a bank gives following benefits: 20  Optimum use of resources: Management facilitates optimum utilization of available human and physical resources, which leads to progress and prosperity of a bank. Even wastage of all types are eliminated or minimized.  Competitive strength: Management develops competitive strength to expand its assets and profits.  Cordial industrial relations: Management develops cordial industrial relations, ensures better life and welfare to employees and their morale through suitable incentives.  Motivates employees: It motivates employee to take more interest and incentive in the work assigned and contribute for raising productivity of the enterprise and profits of the enterprises.  Stability and prosperity: Efficient management brings success, stability and prosperity to a business through cooperation and team spirit among employees.  Expansion of business: Expansion growth and diversification of a business unit are through efficient management. It creates good corporate image to a business enterprise.  Team spirit: Management develops team spirit and raises overall efficiency of a business enterprise.  Effective use of Managers: Management ensures effective use of managers so that the benefits of their experience, skills, maturity, etc. are available to the bank.  Smooth functioning: Management ensures smooth, orderly and continuous functioning of bank over a long period. It also raises the efficiency, productivity and profitability of the bank  Reduces turnover and absenteeism: It reduces labour turnover and absenteeism and ensures continuity in the business activities and operations. 1.1.9 Let us Sum-Up Management is the activity of getting the work done in the most optimum way by utilizing the available resources. In order to achieve business objectives, there is a need to bring together available basic resources like men, materials, machine, money and market. Management is defined as the process by which managers create, direct, maintain and operate organizations through coordinated cooperative human efforts. The rural Co-operative Credit structure is pyramidal in nature. Mostly, it has a three- 21 tier structure. All the co-operative institutions follow seven basic principles of Cooperatives and are managed as per the directions of the Board of Directors. In the workplace, it is important to have both great leaders and managers. Organizations need good leaders to lead the organization to achieve its mission and vision. They also need good managers to ensure that things are getting done and that their teams are aligned with the company’s goals. Banking in India has become more robust and provide all kinds of physical and technological services to satisfy the increasing needs of its customers. Govt. of India has amended Banking Regulation Act, 1949, latest in the series during September 2020. This amendment has accorded more authorities to RBI to monitor and ensure competitive and professional functioning by RCBs. 1.1.10 Check Your Progress 1. Management is a process of planning, leading, organizing and _________ people within a group in order to achieve goals. a) Controlling b) Paying c) Counting d) Utilising / Using 2. Management functions consist of a sequence of continuing cycle of three primary activities: a) Establishment of a plan, b) ________ and c) Measurement of results. a) Performing the actions b) Allocation of resources c) Monitoring the work process d) None of the above 3. Which ONE of the following traits corresponds more to Leadership qualities than Management qualities: a) Delegation b) Forward planning c) Vision and Creativity d) Strategic thinking 4. Henry Fayol laid down _____ principles in his book. a) 12 b) 14 22  c) 13 d) 15 5. What does one of Fayol’s principles – “Espirit de corps” means? a) Union is strength b) Service is our motto c) Buyer beware d) Product is our strength 6. Management is ________________. a) An art b) A science c) An art not science d) An art and a science 7. Henry Fayol was a French__________________. a) Manager b) Actor c) Writer d) Mining Engineer 8. “General and Industrial Management” was written in year ____ by______. a) 1916, J. Henri Fayol b) 1916, Harold Koontz c) 1917, Terry Brainworth d) 1917, C. Louis Allan 9. Which of the following signals signify change in retail banking industry: a) Higher standards of technological b) Increased Competition amongst Banks advancements c) Accelerating customer expectations d) All of the above 10. “Block Chain” relates to: a) Logistics and warehousing b) Labour Unrest c) Cryptocurrency d) None of the above 23 11. What is the full form of “UPI”? a) United Price Index b) Union of Petroleum Industries c) Unified Price Interface d) Unified Payments Interface 12. Primary Agricultural Cooperative Credit Societies (PACS) are set up by: a) DCCB of the concern district and RCS b) Primary members of the Society c) Primary members along with State d) Village Panchayat and Zila Parishad Coop. Bank 13. Powers to conduct inspection of State and Central Cooperative Banks have been delegated to NABARD under which section of BR Act, 1949 (AACS)? a) Sec 33 (6) b) Sec 34 (6) c) Sec 35 (6) d) Sec 36 (6) Answer Key: 1: a 2: b 3: c 4: b 5: a 6: d 7: d 8: a 9: d 10: c 11: d 12: b 13: c 1.1.11 References for Further Reading Hoggson, N. F. (1926): "Banking through the Ages", New York, Dodd, Mead & Company IIBF, Mumbai: "Cooperative Banking" for CAIIB – Publisher: Macmillan Education Shaktikanta Das, Governor, RBI: March 25, 2021: "Financial Sector in the New Decade" Address at the Times Network India Economic Conclave in New Delhi Van Loo, Rory (February 2018). "Making Innovation More Competitive: The Case of Fintech". UCLA Law Review. 65 (1): 232 Wikipedia: Bank : https://en.wikipedia.org/wiki/Bank 24 Lesson No. 02: HR and Service Rules 1.2.1 Introduction 1.2.2 Managing Human Resources in Rural Cooperative Banks 2.1.2.1 Positioning of Bank Staff in post CBS Period 1.2.1.3 Rules of conduct 1.2.1.4 Staff discipline 1.2.5 Discipline Management 1.2.5.1 Disciplinary Procedure 1.2.5.2 Important provisions of the discipline and appeal regulation 1.2.6 Domestic enquiry 1.2.6.1 Guiding Principles 1.2.6.2 The enquiry procedure 1.2.6.3 Employee’s right to be defended 1.2.7 Let us Sum-Up 1.2.8 Check Your Progress 1.2.9 References for Further Reading 25 1.2.1 Introduction In present fast changing financial scenario, association between banks’ performance and the economic growth of any developing economy like India is well established. In recent years all public and private organisations are adopting innovative strategies for production and marketing of their services. New pioneering planning processes are followed to set a direction, providing objectives and goals by better understanding opportunities and threats that may be on the horizon. However, the biggest barrier is the inability of many banks and financial entities to change and plans may fail if the right people are not involved in the process. A probable inference drawn is that pressures are mounting on the Human Resources available with institutions. In view of the above, professionalism and business efficiency associated with staff assumes central importance. Besides working atmosphere, conditions, behavioural aspects of staff as well as management, procedural aspects, communications, transparency greatly influence the productivity. Any organization which has a group of people managing its various functions has set of rules and procedure for conducting its business. Some organizations call these, their standard operating procedure; others call it as the code of conduct, all of which make up the internal discipline of the organization. These rules may be with reference to behaviour and discipline at workplaces, dealings with the customers or the quality standards. 1.2.2 Managing Human Resources in Rural Cooperative Banks The management of people in the organization along with handling the financial and economic risks at the wider level is the most potent challenges in front of the banking industry in current state of affairs. Efficient and skilled manpower in the sector can only manage the financial risks that the banks need to take on regular basis. Though operating as banking institutions, the nature of the organisation and human resource employed in cooperative banking system is distinctly different from that of commercial banks. Such differences largely stem from various factors summarised below.  The overall business milieu of the Cooperative Banks is rural and agrarian.  The area of operation is geographically limited.  The people employed are largely from within the State.  The ownership of the bank is member based who are also customers of the bank. 26  There is unusual proximity between employees and Board of management.  The process of recruitment in many cases is not strictly professional.  The recruitment and promotion policies are generally approved by the Cooperation Department (Registrar of Cooperative Societies).  Most staff recruited do not have adequate qualifications and have joined the banks as sub-staff/clerical grades and then promoted to officer cadre. Now due to change in the banking scenarios and cope up with the demand, most of the Rural Cooperative Banks have initiated recruitment of qualified personnel though professional organization, like IBPS.  DCCBs do not have the opportunity to recruit staff on an ongoing basis. For long periods, there was neither recruitment nor promotions at officer level. It is essential that the capacity building of the available staff is given priority. The banking industry like the Indian economy is moving very fast and to keep pace with the changes, the cooperatives will have to provide continuous exposure to their employees to the best and the latest happenings through participation in training, seminars and workshops. 1.2.2.1 Positioning of Bank Staff in post CBS Period With greater global integration, increased application of IT and changing customer requirements, banking landscape in India has become rich and diverse. The professionalism and business efficiency associated with staff becomes a top priority for existence in a competitive world. Varied responsibilities in todays’ work portfolio can be reckoned as under: Customer Care and Retail and Commercial Teller Activities and other Hospitality maintenance Banking Cash Handling Credit Analyst Project Finance Investment Banking Corporate Finance Wealth Management Equity Research MIS and Reporting to HO, Regulatory authorities and Risk Management Shareholders ALM ALCO Investment SLR and Non SLR investment 27 The hierarchical structure in most cooperative banks can be broadly divided in to three categories of staff viz., officers, clerical and sub-staff. The officers’ cadre, other than CEO of the bank, can be largely divided into three segments viz., junior management, middle management and senior management. The junior management grade is largely populated by officers of the lowest two rungs viz., Assistant Manager or Junior Manager and Manager. While the middle management consists of Senior Manager or Chief Manager and Assistant General Manager (AGM), the senior management is represented by Deputy General Manager (DGM) and General Manager (GM). In some StCBs there is also Chief General Manger (CGM). In clerical cadre, the designations are Banking Assistant or Junior Accountant. Included in the sub-staff category are largely peons, watchman, driver, etc. As banking is becoming more competitive and its regulatory landscape is changing towards higher order compliance, specialized departments need to be created with staff having expertise in fund management, investment and treasury operation, ALM and pricing of products. Similarly, banks that do not have such of those departments which are essential for complying with the mandatory guidelines of NABARD/ RBI, such specialized departments need to be formed. 1.2.3 Rules of conduct The service rules applicable to the staff of DCCBs are similar to the State Government employees. Each bank has designed service rules of staff and everyone in the bank is furnished with a copy of the rules governing his/her service to which he/she subscribes on appointment. The general provisions regarding conduct and discipline that will apply to all other categories of employees of the bank are set forth as under:  An employee of the bank may not -  Borrow money or permit any member of his/her family to borrow money or otherwise place himself/herself or a member of his/her family under a pecuniary obligation to a broker or a money lender or a subordinate employee of the bank or any person, association of persons, firm, company or institution, whether incorporated or not having dealings with the bank.  Buy or sell stocks, shares or securities of any description without funds to meet the full cost in the case of a purchase or scrip for delivery in the case of a sale. 28   Book debts at a race meeting  Lend money in his/her private capacity to a constituent of the bank or have personal dealings with a constituent in the purchase or sale of bills of exchange, government paper or any other securities.  Guarantee in his/her private capacity the pecuniary obligations of another person or agree to indemnify in such capacity another person from loss, except with the previous permission of the Appropriate Authority.  Act as an agent for an insurance company otherwise than for or on behalf of the bank  Take part in the registration, promotion or management of any bank or other company which is required to be registered under the new Companies Act, 2013 or any other law for the time being in force or any co -operative society for commercial purposes without the previous sanction of the Appropriate Authority, except in the discharge of his/her official duties.  Engage directly or indirectly in any trade or business or undertake any other activity without previous sanction of appropriate authority.  An employee may, without such sanction, undertake honorary work of a social or charitable nature or occasional work of a literary, artistic, scientific, professional, cultural, educational, religious or social character, subject to the condition that his/her official duties do not thereby suffer or the undertaking or such work is not detrimental to the interest of the bank; but he/she shall not undertake, or shall discontinue such work if so directed by the Appropriate Authority.  Nothing will prohibit an employee from making bona fide investments of his/her owned funds in such securities as he/she may wish to buy. However:  Canvassing by an employee in support of the business of an insurance agency, commission agency, etc. owned or managed by a member of his/her family shall be deemed to be a breach of this sub-rule.  Prior sanction under this rule is not necessary for holding an office ex-officio outside the Bank, under any law or rules, regulations or bye-laws made there under, for the time being in force, or under directions from any authority to 29  whom the employee is subordinate. An employee guilty of infringing any of the provisions as laid above may render himself liable to dismissal from the service.  An employee of the bank may not take an active part in politics or in any political demonstration. An employee may not accept office on a municipal council or other public body without the prior sanction of the bank.  All employees must maintain the strictest secrecy regarding the Bank’s affairs and the affairs of its constituents.  No employee shall accept or permit any member of his/her family or any person acting on his/her behalf to accept any gift except customary gifts from relatives and personal friends on occasions such as marriages, anniversaries, funerals or religious functions when the making of gifts is in conformity with the prevailing religious or social practice as per following guidelines:  As a normal practice, an employee shall not accept any gift from a person obligated to the Bank through official dealings.  A casual meal, lift or other social hospitality shall not be deemed as a gift.  An employee may not overdraw his/her account with the Bank, whether against security or otherwise, without the authority of the controlling office or the branch manager to the extent of powers delegated to him/her.  No employee shall bring or attempt to bring any political or other outside influence including that of individual directors of the Bank or the Members of the Local Board to bear upon any superior authority to further for own interest in the bank.  An employee desirous of applying for an appointment elsewhere or for a post in a higher capacity in the bank itself (if permissible) shall forward his/her application through the branch manager or the head of the department as the case may be.  In terms of the Criminal Law (Amendment) Act, 1988, the definition of the term “public Servant” as given in Section 21 of the Indian Penal Code has been extended to cover the employees of statutory corporations. Accordingly, all employees of the bank come within the purview of the Prevention of Corruption Act and any other criminal law relating to public servants. 30 Bank codifies the behaviour or conduct expected from its employees. Breach of any norms of conduct is treated as misconduct. 1.2.4 Staff discipline An organization requires a framework of policies, rules regulations and procedures to fulfil its roles. These are necessary to function in an orderly and smooth manner. The orderly conduct based on well-defined standards and clear guidelines is called discipline. The word “discipline” is probably derived from the word “disciple”, which means learner or follower. When a person spontaneously and willingly abides by the required norms, it is called positive or constructive discipline; whereas when he is compelled to behave in a desired way under threat or fear of punishment, it is termed as negative or punitive discipline. Although positive discipline is desirable, there will be occasions when punitive action has to be resorted to for three main reasons:  To make the employee realize the seriousness of infringing the rules of conduct  To send right messages to others, and  To prevent recurrence of such events within the organization. The following are the assumptions in employee discipline:  Disciplined behaviour is essentially a voluntary concept. The acceptance of norms and rules should be out of conviction and not on account of compulsion. This presupposes that the rules and regulations should be properly communicated and understood by the employees.  Norms to be accepted should be described precisely and rules updated from time to time to ensure that they are in conformity with the changing scenario.  The authority issuing instruction of good behaviour on his/her part must set an example to his/her subordinates.  The employees should be praised in public and reprimanded in private. Discipline is often compared with a hot stove. The application of hot stove theory in the matters of discipline implies;  Total impartiality while handling disciplinary matters  No undue time-lag action and effect 31   The consequences should be logical and the punishment for the misbehaviour should be made known  There should be consistency in managerial follow-up action, i.e. the outcome should not be at a large variance What emerges from the above is that for effective discipline at the workplace, it is imperative to have fair play, proper and crisp communication of the rules and regulations and impartial treatment of the cases of indiscipline. Discipline that restricts the freedom of an employee connotes negative feelings as failure to comply and invites penalties. Discipline should instead involve creation of mind set and attitudes to follow the desired pattern of behaviour. When more and more employees follow the rules, an ideal organizational climate is created where employees willingly conform to a standard behaviour. The seniors play an important role in creation and maintenance of such a climate by setting an example by themselves. Positive discipline leads to team spirit, co-operation, mutual respect, high employees’ morale and a positive environment. On the other hand, negative discipline refers to people being forced to follow rules and regulations threatening them severe punishment, if they fail to follow the standards. Such punitive discipline where adherence is sought to be ensured through penal actions ensure only minimum adherence to the rules and regulations, that too, out of fear of being punished. It is always advisable to strive for positive discipline as it results in many other benefits and fosters an atmosphere of mutual trust and openness. The staff members have rights to appeal against the decision of bank and proper decision is taken by the competent authorities. 1.2.5 Discipline Management Discipline management involves creating an environment where employees voluntarily obey rules and regulations. It means and includes handling cases of indiscipline or misconduct. There are various approaches to discipline management, where it is necessary to identify the causes of indiscipline, analyse the reasons try to convince employees-through counselling-that they need to follow rules and as a last resort, go in for punitive action. Trying to maintain discipline only through punitive measures would mean negative discipline which is not in the ultimate interest of the 32 organization. Following are few steps, which should enable the organization to ensure promotion of positive discipline:  The code of conduct, rules and regulations should be laid down clearly, with the consequences to the organization-in terms of losses and bad reputation which may result from not following the norms, should also be clearly communicated to the workers. The consequences the worker would face by not following the rules should be clearly spelt out.  Conscious efforts should be made to see that the rules have easy acceptability. The norms and standards should be also decided that they are easy to adhere to. Setting impossible standards is bound to lead to deviation.  Once the rules are framed, the adherence thereof must be insisted upon. Mere laying down of rules and regulations and laxity in its implementation would not create an atmosphere of positive discipline. It is an admitted fact that the rules and regulations restrict freedom of the employees once they notice that the management is not keen in implementing the rules, they will not be inclined to voluntarily follow the regulations.  The laid down rules need to be modified periodically to ensure that outdated rules are removed from the rules book. 1.2.5.1 Disciplinary procedure The standing orders prescribe the rules of an establishment in respect of disciplinary procedure. The disciplinary proceedings begin with the initial investigation in the reported misconduct. After the preliminary investigation, the appropriate authority decides to proceed further with disciplinary action. The more important points of the procedure are summarized below. 1.2.5.2 Important provisions of the discipline and appeal regulation The important provisions of the discipline and appeal regulation are: Where it is proposed to hold an enquiry, the disciplinary authority shall frame definite and distinct charges on the basis of allegations and the articles of charge together with a statement of allegations shall be communicated to the officer. 33  The officer is asked to submit his/her written statement of defence to the articles of charge and statement of allegations within a stipulated period.  If the statement of defence is not received or it is not found to be acceptable, the disciplinary authority may itself hold an enquiry or appoint an Inquiring Authority to conduct enquiry.  The disciplinary authority may appoint a Presenting Officer to present on its behalf the case in support of the articles of charge while the officer may take the assistance of any other officer-employee.  The disciplinary authority shall take action on the enquiry report and impose penalty.  The provisions relating to suspension of the officer-employee and payment of his/her subsistence allowance are also covered by the regulation.  An officer-employee may appeal against an order imposing penalty an order of suspension to the appellate authority.  The reviewing authority can call for records within 6 months and review the penalty. 1.2.6 Domestic enquiry The principles of natural justice apply to the conduct of domestic enquiry. There is, however, a slight difference in the procedure for conducting enquiry for junior staff and that of the officer employees. Before commencing the enquiry, the enquiry officers are expected to go through the procedure carefully. 1.2.6.1 Guiding Principles  Departmental enquiry is not a mere formality, but is a serious procedure and should, therefore, be conducted with due seriousness.  Domestic enquiry is a quasi-judicial proceeding. Although the provisions of the Evidence Act, 1872 do not apply, substantive principles of the Act should be kept in view. 34  The scope of the enquiry is determined by the charge-sheet or articles of charge. It lays down the terms of reference for the enquiry officer. He/she should not go beyond the terms of charge-sheet.  The employee proceeded against should be clearly informed of the charges leveled against him/her.  The entire proceedings should demonstrate a fair play on the part of the enquiry officer. If he/she is doubtful in a complex matter of what decision or ruling should be given, he/she will do well to err in favour of the charge-sheeted employee. 1.2.6.2 The enquiry procedure As enquiry is a quasi-judicial proceeding and is required to be conducted with due diligence, the important points in the procedure are indicated below: Notice of enquiry: The time, place and date of the enquiry should be clearly stated in the notice. Reasonable period should be given to the employee to prepare for the enquiry. If the employee does not attend the proceedings, it is advisable that the enquiry is adjourned and a fresh date fixed and the employee is notified. Proof of delivery of notice should be obtained and held on record. Notice may, therefore, be sent by registered post. Venue: The place of the enquiry should generally be the unit where the employee is posted. It does not, however, mean that the enquiry should be held at the very place where the misconduct took place. The enquiry could be held elsewhere so long it does not inconvenience the charge sheeted employee (CSE). Evidence: Although the provisions of the Evidence Act are not applicable, it is advisable to observe a certain procedure similar to that followed in a court. Any statement made in support of charges must be made in the presence of the charge- sheeted employee so that he/she has an opportunity to question such a statement. The documentary evidence in support of the case must be taken on record only after giving the CSE a chance to inspect the documents. Witness: A witness is a person who appears in the enquiry either in support of the charges or in support of the CSE. The statements made by the witness are considered as oral evidence. The witness should be examined first by the party producing him/her; this is known as examination –in- chief. Thereafter the opposite side can 35 cross-examine the witness. The enquiry officer should carefully observe the demeanour of the witness so as to arrive at the credibility of his/her statements. Persons who can be present at the enquiry: Departmental enquiry is a closed door proceedings and not one where anyone can attend. Only those connected with the proceedings can attend the enquiry. They are: (a) the enquiry officer, (b) the management representative (MR), (c) the CSE. (d) The defence representative (DR), (e) the witness whose evidence is being recorded (f) and a typist or a stenographer who records the minutes of the proceedings. The witnesses are allowed to depose in the enquiry one after the other and, therefore, no two witnesses should be present in the enquiry at a time. The proceedings: At the first hearing, the enquiry officer should enquire from the CSE whether he/she has received the charge-sheet and has understood the contents thereof. Then, in the presence of' his/her representative, he/she should put a question to him/her as to whether he/she pleads guilty to the charges. If he/she pleads guilty, he/she should be asked whether he/she has understood the consequences of his/her pleading guilty and whether he/she is doing so at his/her volition. Answers to these questions should be recorded, preferably, verbatim. If the CSE does not plead guilty to any or all the charges, the enquiry officer should ask the management representative to lead the case in support of charges. The MR may lead his/her case through witnesses who should be permitted to depose one after the other. After the examination -in-chief of the witness, the CSE should be given chance to cross examine him/her. Only, after the cross-examination is over the next witness should be called. The documents taken on record should be given to the defence for inspection and thereafter taken on record. When the MR closes his/her case the defence should be asked to present its case repeating the same procedure. After both the sides have led their evidences and have also summed up their respective arguments, the CSE should be asked whether he/she has anything else to say or submit. Thereafter, the enquiry proceedings are closed. 1.2.6.3 Employee’s right to be defended The Model Standing Orders as also the Discipline and Appeal rules of an organization provide for right of a delinquent employee to be defended at the domestic enquiry by his/her union representative or in exceptional cases by a lawyer. The Enquiry Officer, therefore, has to ensure that the defence representative of employee is no one other than a representative of a registered union, or with the permission of the Disciplinary 36 Authority, a lawyer. The defence representative need not necessarily be a representative of the recognized union. If the employee wishes to engage a lawyer, the matter should be referred to the Disciplinary Authority and further proceedings should be recorded as per procedure. Where the delinquent employee does not have a defence representative and would still like himself/herself and his/her witness examined, the Enquiry Officer should formulate the questions in the Examination- in-Chief and re-examination on behalf of the employee, the cross examination being conducted by the Presenting officer. Defence Representative and his/her role in an enquiry: The charge sheeted employee has a right to have him/her defended by a representative of a registered trade union of Bank Employees. He/she can also be represented by a Lawyer with the prior approval of the Disciplinary Authority. The Enquiry Officer should note that he/she has no powers to permit the delinquent employee to be represented by a Lawyer. If a request therefore is received, it should be referred to the Disciplinary Authority for his/her approval. It should also be noted that there can be only one representative for each employee. The role of the Defence Representative is to disprove the charges levelled in the charge sheet against the delinquent employee. To this end, he/she will also produce documents and witnesses well in advance and cross-examines prosecution witnesses. He/she will also submit a brief to the Enquiry Officer, after going through the prosecution brief. 1.2.7 Let us Sum-Up Any organization, which has a group of people managing its various functions, has a set of rules and procedures for conducting its business. Managing Human Resources in a DCCB is one of the greatest challenges for its management due to its peculiarities as compared to the Commercial Banks. The role and responsibilities of staff are different due to nature of work assigned to them. Each and every employee in the bank is furnished with a copy of the rules governing his/her service to which he/she subscribes on appointment. Discipline management involves creating an environment where employees voluntarily obey rules and regulations. The principles of natural justice apply to the conduct of domestic enquiry. Enquiry is a quasi-judicial proceeding and is required to be conducted with due diligence. 37 1.2.8 Check Your Progress 1. Which of the following is the most important objective of HR management? a) Minimize the role of human by replacing them with machines. b) Teach humans how to deal with stress in workplace. c) Ensure people have the requisite judgment skills before hiring them. d) Proper utilization of available skilled workforce. 2. HRM acronym stands for? a) Human Relations Management b) Humanistic Resource Management c) Human Resource Management d) Human Resourceful Management 3. HRM is a ________. a) A staff function b) A line function c) A staff function, line function and d) All of the above accounting function 4. Finding ways to reduce _____ is a key responsibility of management. a) Dissatisfaction b) Uncertainty c) Stress d) None of the above 5. Strategic thinking is a ________ process. a) Short term b) Long term c) Continuous