Merger & Acquisition of Banks

                                      Southern Economist,Volume 46(5) 2007

A paradigm shift is taking place in the global economic scenario. Organisations, big or small are looking for organic and inorganic growth so as to expand size and have larger share in the business pie. Technological innovations coupled with deregulation have prompted a wave of mergers in the banking industry throughout the world. The industry has realised that competition can be faced by cutting costs, improving service, launching new innovative products and by expanding size. Growing institutions are on look out to grab every opportunity for expanding market. Indian banking industry, which was hither to operating in protective regulations, has become most active players in mergers.
Expansion can either be done by exploring new markets or by merging with competitors or taking them over. Since the gestation period involved in starting a new product line and making a dent in the virgin market is long, the best option to cut short the gestation period and cost, is procuring control over similar other institution by merger or leverage buy out. Both merger and acquisition involve one or multiple institutions purchasing all or part of another organisation. Merger, amalgamation, acquisition and take over are different routes for arriving at the goal of absorption of one or multiple institutions. Consolidation is also absorption.

1)-What is Merger?

According to the Oxford Dictionary, the expression "merger" or "amalgamation" means "combining of two commercial companies into one" and "merging of two or more business concerns into one" respectively.
Merger is combination of two or more companies into a single entity where one survives and other ceases. Merger takes place when two business entities agree to go forward as a single new entity and the existing stakeholders of both the involved institutions retain a shared interest in the new entity. With the merger, all assets, liabilities and stocks of one entity stand transferred to the transferee institution. Shareholders of the amalgamating entity get shares of the amalgamated entity at a pre-agreed ratio or proportion in exchange of their existing share in the target institution.
The object behind merger is to achieve greater efficiencies of scale and productivity. Mergers are the potential for concentration of economic power and exploiting existing core competencies. Merger may involve absorption or consolidation. In absorption, one entity acquires another entity. In legal parlance, we call mergers as amalgamations in India.

Mergers can be broadly classified as:

1-a) Horizontal Merger

It is a merger of two institutions, which have common product line, or render the same services, and compete directly with each other. The merger is based on the assumption that it will provide economies of scale from the larger unit and will eliminate competition, duplication of facilities, reduction in cost, increase in market segments and exercise of better control over market.

1- b) Vertical Merger

It takes place between two institutions having different operations either as forward or backward integration i.e. where one of them is an actual or potential supplier of goods or services to the other. The main object is to ensure a source of supply, ready take off of the materials and outlet for products, gain control over product specifications, increase profitability by gaining margins of the previous supplier/distributor and improving efficiency.

1-c) Circular Merger

Companies producing different products seek amalgamation to share common distribution and research facilities and promoting market enlargement. The acquiring company benefits by economies of resource sharing and diversification.

1-d) Conglomerate Merger

It is a merger of indifferent or unrelated business output institutions. The merger entities have no common business lines. The purpose is to ensure utilisation of financial resources, enlarge debt capacity and to reduce risk by diversification. The entities opting for conglomerate merger control a range of activities in various industries requiring different skills in the specific functions. The purpose is to obtain greater stability of earnings through diversification; utilising spare resources whether capital or management; and to obtain benefit of economies of scale.

1-e) Reverse Merger

It is a method by which a private company becomes a public company, bypassing the lengthy and complex process of initial public offering (IPO). It is generally used in those cases where a company having higher net worth is merging into a company having net worth lower than it. Merger of ICICI Ltd., with ICICI Bank was the reverse merger.

2) What is Acquisition?

When one entity takes over another entity and establishes itself as a new owner, the purchase is called acquisition. In acquisition, one institution purchases bulk of stock of another organisation, creating an uneven balance of ownership in the institution. Acquisition is similar to big fish swallowing small fish. From legal point of view, the target entity ceases to exist. This can be affected by:
Agreement with the persons having majority of the stake
Purchase of shares in the open market
To make takeover offer to the general body of share holders
Purchased of new shares by private treaty
Acquisition of share capital

Acquisition can be –

2-a) Hostile

When one organisation without the consent of other organisation acquires significant portion of the stocks or equities of other concern with a view to having control over the organisation, it is termed as ‘hostile’ take over.

2-b) Friendly

When one institution makes a financial proposal to the management and Board of another institution, which is to be acquired it is termed as “friendly” take over. The objective is to take over the institution with its consent. The proposal might involve the merger of two institutions or consolidation of two institutions or creation of parent/subsidiary relationship. The Mergers and acquisitions are through the negotiations, willingness and consent of the acquiree company.

2-c) Leveraged Buyouts

This is the acquisition of a company by its management personnel. It is also known as management buyout. Management may raise capital from the market or institutions to acquire the company on the strength of its assets.

3) What is Amalgamation?

It is acquiring a controlling interest by one organisation in another organisation. It is blending of two or more existing undertakings into one undertaking. The blended company loses its identity and form springs into a separate legal identity. The shareholders of each blending company become the shareholders in the company, which is to carry on the blending undertaking.

4) What is Take over?

It is acquisition of a certain block of equity capital of a company, which enables the acquirer to exercise control over the affairs of the company. Normally merger/amalgamation and acquisition/take over are the terms used interchangeably. Takeover differs with merger in approach to business combinations i.e., the process of takeover, transaction involved, determination of exchange rate of the shares of the companies that would undergo a merger known as Swap Ratio. This is calculated by the valuation of various assets and liabilities of the merging companies.
Take over is change in a corporation's controlling interest either through a friendly acquisition or a hostile bid. Hostile takeovers aim to replace the target company's existing management and are usually attempted through a public tender offer. In an "unfriendly" takeover (Hostile), acquirer may not offer the proposal to acquire the target company’s undertaking, but may offer incentives to stockholders such as offering a price well above the current market value to gain controlling interest in it against the wishes of the management. They are also called raids or takeover raids. Other takeover methods are unsolicited merger proposals to directors, accumulation of shares in the open market, or proxy fights.

4-a) Clandestine Takeover (or) Creeping Takeover

The clause 40 of the Listing Agreement of stock exchange allows a person to buy up to 5% stake in a company without any prior permission. After 5%, they ought to inform the stock exchange.

5-Rules governing Mergers and take over

The terms merger and amalgamation have not been defined in the Companies Act, 1956, the provisions relating to merger and amalgamation are contained in sections 391 to 396A in Chapter V of Part VI of the Act. A procedure has been laid down in the Indian” Companies Act, 1956”, in terms of which a merger can be effectuated. Sanction of the Company Court (High Court) is an essential prerequisite for the effectiveness of and for effectuating a scheme of merger.
Mergers and Amalgamations are outside the purview of Securities and Exchange Board of India (SEBI). However, only takeovers and substantial acquisition of shares of a listed company fall within the regulatory purview of SEBI. These Regulations are called the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.The regulatory provisions governing merger contained in the Monopolies and Restrictive Trade Practices Act, 1969,were removed with effect from 27-9-1991, through the 1991 amendments .

6) What is Consolidation?

It is fusion of two existing entities into a new unit. In consolidation two or more entities combine to form a new entity. Both the entities lose their identity and cease to exit and a new institution takes birth. The stakeholders of both the entities become stakeholders of new entity. The idea behind consolidation is that strong unit can absorb shocks and survive in difficult times.

7) Difference between Merger and Acquisition

Basically there is no difference between merger and acquisition. The difference is only in the operational process of acquisition. In merger, one entity gets merged with other loosing its identity by way of share transactions/assets/liability transfers. In acquisition/take over, one concern acquires the controlling interest of ownership of capital. However, the acquired organisation retains its own individual identity.

8) Why Merger & Acquisition?

Merger is a way of changing and expanding the organisation. By merging with a major competitor, an organisation can dominate the market they compete in. The main purpose of merger and acquisition is to enhance market share, absorbing, eliminating or reducing competition, reducing operating cost, to fill the gap of expert and professional staff and to take advantage of tax benefits, if the institution being merged or acquired is a debt ridden or loss entity. Another object could be to acquire the technology of the competitor or of the target company. This has been observed in the IT sector, where a number of companies have taken over other IT companies offering rich products or services developed by them, or to enhance capacity and to become major player both in domestic and global market for example “Tata Steel” acquiring “Corus”, A V Birla Company –Hindalco taking over Novelis a Canadian aluminum giant.

9) Advantages of Merger & Acquisitions

9-i) Growth

One of the fundamental motives that entice merger is impulsive growth. Organisations that intend to expand need to choose between organic growth and acquisition driven growth. Since the former is very slow, steady and relatively consume more time, dynamic organisations that are ready to capitalise on opportunities prefer the latter. Merger helps in diversifying the areas of activities. It helps in achieving optimum size of business and removes certain key factors and other bottlenecks of input supplies.

9-ii) Managerial Efficiency

Some acquisitions are motivated by the belief that the acquirer’s management can better manage the target’s resources.

9-iii) Revenue enhancement

The reason can differ on a case-to-case basis. When two business entities have complementary business interests, mergers may result in consolidating their position in the market resulting into cost reduction, and revenue enhancement.

9-iv) Tax benefit

This plays a significant role in acquisition. If the distressed entity has accumulated losses and unclaimed depreciation benefits on their books, such acquisition can eliminate the acquiring institution’s liability by benefiting merger.

10) Merger/Amalgamations- Banking Regulation Act, 1949

Amalgamation of banking companies under Banking Regulation Act falls under two categories i.e. voluntary amalgamation and compulsory amalgamation.
Section 44A deals with Voluntary Amalgamation of Banking Companies. As per the provisions, a banking company may be amalgamated with another banking company by approval of shareholders of each banking company by resolution passed by the majority of two third in value of the shareholders of each of the said companies. The banks have to obtain Reserve Bank’s sanction for the approval of the scheme of Amalgamation. The Reserve Bank generally encourages amalgamation when it is satisfied that the scheme is in the interest of depositors of the amalgamating bank.
Under Section 45 (4) of the Banking Regulation Act, 1949 Reserve Bank may prepare a scheme of amalgamation of a banking institution. A compulsory amalgamation is pressed into action where the financial position of the bank has become weak and urgent measures are required to safe guard the interest of depositors’. Section 45 of the Banking Regulation Act, 1949 provides for a bank to be reconstructed or amalgamated compulsory, i.e. without the consent of its members or creditors, with any other banking institutions as defined in sub-section (15) thereof.
According to Section 45, the Reserve Bank of India can submit a scheme to the Central Government for amalgamation of banking unit with a well managed bank within a period of not more than six months moratorium granted by the Government on an application made earlier in that behalf by Reserve Bank of India.
One advantage of compulsory amalgamation over liquidation is that the depositors get immediate credit to the extent of readily realizable assets at the commencement of the amalgamation, additional payments being made as and when the remaining assets are realised.

11) Narsimaham Committee on Merger

Narasimaham Committee report on financial system had recommended a broad pattern of the structure of the banking system as under-
a) 3 or 4 large banks (including the State Bank of India) which could become international in character.
b) 8 to 10 national banks with a network of branches throughout the country engaged in “Universal” banking.
c) Local banks whose operations would be generally confined to a specific region: and
d) Rural Banks (including Regional Rural Banks) whose operations would be confined to the rural areas and whose business would be confined to the rural areas and whose business would be pre dominantly engaged in financing of agriculture and allied activities.
The Narasimaham Committee on banking sector reforms suggested that “Mergers between banks and Development Finance Institutions (DFIs) and Non Banking Finance Companies (NBFCs) need to be based on synergies and should make a sound commercial sense. Committee also opined that mergers between strong banks/Financial Institutions would make greater economic and commercial sense and would be a case where the whole is greater than the sum of its parts and have a “force multiplier effect”. It also opined that mergers should not be seen as means of bailing out weak banks.
A weak bank could be nurtured into healthy units. Merger could also be a solution to a weak bank, but Committee suggested that it should only be after cleaning up their balance sheets. It also suggested that if there is no voluntary response to take over such banks, a restructuring commission for such Public Sector Banks can consider options such as restructuring, merger, amalgamation or if not closure.”
To find a solution on the lines suggested by Narasimaham Committee, the Government passed an ordinance on September 4, 1993 and took initiative to merge New Bank of India with Punjab National Bank, which turned out to be an unhappy event.

12) Necessity of Merger and Acquisition in banks

India is fast emerging as an economic power. It requires two-three banks that can be termed global. Indian banks do not enjoy a global status. It is facing the crisis of global identity. Big banks have edge over small ones. They can raise money at a cheaper rate and can offer competitive lending rates.
Their assets are more diversified, both sector-wise and geographically. Therefore, it is less risky. Their risk absorption capacity is high. They are also in a position to offer wide range of services for which fees can be charged. This reduces their dependence on the net interest income.
In the post Basel II era, banks have to enhance risk taking abilities, which can be done through mergers, acquisitions and strategic alliances. Hence, there will be more often banking consolidation.

13) Trends in Merger of Banks

In order to compete with large and well-established Public Sector banks, Private Sector banks are not only foraying into IT, but also shaking hands with peer banks to establish them in the market. To have a hold on South Indian market, which has higher rate of economic development, ICICI Bank merged 57 year old Bank of Madura on 9th December, 2000.The swap ratio was 1:2, two shares of ICICI Bank for every one share of Bank of Madura.The trend is continuing. To name a few Times Bank merged with HDFC Bank Limited, Bank of Punjab merged with Centurion Bank, Global Trust bank merged with Oriental Bank of Commerce and many more banks are keeping eagle’s eye on other banks. In the global context, in recent times whether its Citi Traveller group, RBS Natwest or the latest one, Barclays ABN Amro, the age of the mega merger is rolling on.

14) Advantages of Bank Mergers

The consolidation /merger of banks will not give instant results. However, once the incubation period is over and the bank is back on the track, the mergers of banks result into –

14-i) Financial capability

Amalgamation will enable banks to have a stronger financial and operational structure and will enable it to face global competition. It will also help banks in greater resource/deposit mobilisation and profitable utilisation of surplus funds.

14-ii) Branch network

With the merger, existence of two branches in the same locality may not be necessary. Closure of branches in the near by vicinity will reduce overheads. Merger helps in rationalisation of branch and staff. It helps in increasing network of branches and enhances geographical coverage.

14-iii) Customer base

The merger results into larger customer base, offering of different banking and financial services and products and also facilitating cross selling of products and services. However, it has to be ensured that the customers of the branches that are being merged with the nearby branches are not put to inconvenience as this may result in customers migrating to other banks.

14-iv) Cost reduction

Merger would also result into reduction in operative cost to a greater extent viz. payment of annual maintenance charges for software as well as numerous other items such as servers, computers, machinery, equipment etc. It would also help in closing down unviable branches of the bank in the same vicinity. It would also result into reduction in administrative cost by closing down controlling offices i.e. Regional and Zonal offices.

14-v) Effective staff deployment

With the merger, the bank will be in a position to pool staff having expertise in different operational areas whose services could be utilized profitably. Surplus staff can be redeployed fruitfully for business development, marketing of assets and liability products, fee-based services, recovery, and reducing Non Performing Assets.

14-vi) Technological Challenges

Merger of highly technological bank with lesser technological bank helps in quick introduction of technology in the merged bank. Merger would enhance the utility and viability of ATMs and increase the number of transactions, as there will be more availability of ATMs to customers.

15) Disadvantages

The first and foremost disadvantage of merger is that the top executives of the acquired /merged bank are shown the door of the bank or such situations are created that they that feel suffocated and are compelled to leave the bank. This is what was experienced from the mergers that took place in the recent past in the banking industry in India. People occupying pretty senior hierarchical position were fixed at a much lower grade without regard to their experience and length of service, or they were side tracked by assigning unimportant task, or were demoralised by derogatory remarks.
This gives wrong impression to the staff of the merged bank. They feel alienated and their productivity and enthusiasm gets a setback, in the process they become unproductive.

16) Problems in consolidation /merger

16-i) Customer Service

Merger sometimes causes disruptions in services to customers. It may cause a permanent reduction in service to some customers, because the acquiring organization is less willing to or able to serve those customers that were acquired originally. It involves time in customer developing a sense of belonging to the bank. There is also a fear that the attitude of the staff of-absorbing bank towards the clients of merged bank may not be encouraging.

16-ii) Technological Issues

There is no uniformity in technology in banks. Different technology is being followed in different banks, which makes it difficult to integrate the system.

16-iii) Attitudinal Problems

Merger of two entities involves merger of two different work cultures, work ethics and work ethos. Cultural integration takes time. Intermediate period creates attitudinal problems towards work and management. During the gestation period of integration there is lack of clarity in job responsibility. There is absence of teamwork and shared responsibilities for getting work done. This demotivates the workforce.

16-iv) Systems and procedure

Over a period of time, each bank has developed its own systems and procedures, which have been embedded in its culture. Each bank has its own set of rules and regulations, which have been documented in the form of book of instructions. Unless rules and regulations, systems and procedures are standardised, merger will lead to confusion amongst staff and will result into chaos in operation. This will have direct impact on the efficiency of the staff and customers would feel the burnt.

16-v) Unions

Every bank has unions for protecting the interest of employees. Office bearers of unions enjoy several hierarchical posts. Even there is employees’ representation in the board of the bank. Power and supremacy enjoyed by each leader within his bank varies. Merger of two banks will trigger struggle for power amongst the leaders, which will have adverse impact on the working of the bank, as member of one union may not cooperate with the members of other union.

17) Human Side of Merger

The merger is not only a financial event. It is not of mortar and brick institutions, but it is of two cultures. Mergers result in new reporting relationship. There are cultural differences in the entities. Work ethics differ. There are difficulties of adequately blending culture and integration. The staff of merged bank finds themselves in loss. They crave for identity and recognition. There is a threat to the seniority of the staff of the merged bank. In some banks there were fast promotions and in some late. Even problems of figment of salary and grades arise. Employees fear relocation and transfer. They lose self-confidence and mistrust develops.

A bank taking over another bank has to project that the staff of amalgamated bank is welcomed. They are to be given psychological support. Those in command should help the staff of merged bank in giving them briefing about culture of the bank and should show confidence in them. The staff of merged bank should be properly treated. They should not be treated as second grade citizens in the merged institution. There should not be any preconceived notion, lest there may be far reacting consequences and the whole object of merger will suffer.

18) Planning for Merger/Take Over/Acquisition?

The first and foremost thing, which an organization has to decide, is the purpose/ objectives behind the Merger, Take Over or Acquisition. It has to visualise the problems that may occur and to chalk out the strategies well in advance to solve them .It has to be clear

Whether the object is to tap untapped market?
Whether the purpose is to eliminate or reduce competition?
Whether it wants to become financially strong?
Whether the object is to increase the size of balance sheet?
Whether the object is cultural integration?
Whether the object is to procure an existing product and leverage?
Whether the object is to avail Tax benefit?
Whether the object is to leverage on technology?
Whether the object is to cut short the time involved in growth?
Whether the purpose is to have managerial efficiency?
Whether the object is to reduce operational cost?

The solution to all these issues is merger/acquisition, amalgamation and consolidation, which are different routes in that direction. Before finally deciding about merger the organisation has also to look into;

Average age of work force of the entity to be merged.
Financial commitments of the entity?
Assets and liabilities of the institution to be merged and its quality?
Book value of assets and shares?
What is the history of business growth? Is it increasing or decreasing?
Market share of the entity to be merged and its reputation?
Quality of work force, their approach and commitment?
Laws affecting merger?
What is the organizational culture?
What are the future prospects?
What are the bottlenecks that may be faced?
What are the strength, weakness, opportunities and threats?
Whether the technological platform is same or different?
What is the cost of merger or acquisition, and will it be met?
If it is to be met by borrowings, what will be repayment schedule, interest obligation how will it be met and whether it will result into liquidity crunch?
What will be the impact on market value of shares?
What will be the immediate gain or benefit?

If the ultimate analysis indicates that merger/acquisition will be beneficial the institution should proceed in that direction.

LINKING PREVAILING LEADERSHIP TO INDIAN SCRIPTURE

Who is a Leader?

Every creature has an instinct to perform. However, this instinct is not uniform. Some persons show excellence when led and some when lead. Effective leaders are those who have stronger need to show excellence and have ability, capability, desire to guide, motivate, and channelise group energies towards a predetermined goal. They are a part of the group and not apart of the group. The metal of these persons is quite different. They have the quality to spark and ignite the latent talent in the work force and steer the organisation even in rough weather. They inspire the team in shaping the future of the organisation and concretizing its values and culture. Since they have wisdom, are full of confidence, people in the organisation look upon them for guidance. Because of their capabilities, uniqueness and ability to lead, their instructions are carried out with devotion and dedication. Effective leaders believe in action and not in announcements and pronouncements.

Leadership and Organisation

Management and leadership are supplementary and complementary to each other. Whereas, management is doing things right, leadership is doing right things. A positive co-relation exists between leadership style and success of the organization. Future of an organization depends on the knowledge, vision, skill, and experience of its leader. It depends on his ability and capability to plan, coordinate and guide. Fate of an organisation is made or marred by its leaders. The quality of leadership surfaces in rough tough, milling and grilling assignments rather than in routine mundane assignments.

Quality of a leader

A good leader should have vision, commanding personality, persuasive ability, courage and intelligence. He should be an action-oriented person with instinctive urge and inborn will to achieve success. He should always be in look out for challenges. He should not fear them; rather treat challenges as an opportunity for excelling. Good leaders believe that success lies in managing crisis. To them, crisis management is efficiency and managing by crisis deficiency. They consider crisis to be precursor of learning. Greater the crisis, better the learning . They believe that, as it is the past, which has made the present, the present will make the future; hence they plan out the future of the organisation. They lay the foundation of the organisational culture.

Identification of Leader

A leader can either be a born leader, a groomed leader, a situational leader, a hierarchical leader or he can even be thrusted upon. Some times leadership by force may also be employed. At times leadership is even bargained or traded.
Leadership can be classified in to two broader categories – Main i.e. Chief Executive and Secondary i.e. his deputies occupying various positions in the organisational hierarchy. By and large in most of the public sector organisations in India, the main leader is thrusted upon an institution either by chance or by design. It is he, who selects secondary leaders generally from within the organization for managing and supervising various functions.
The selection by promotion to higher cadre is said to be either by seniority or merit or competence. However, by and large the general feeling in public sector institutions in India is that in most of the cases, promotion by selection for managing different tiers of the organisation is influenced not by what you know but whom you know. In Indian context it is the pedigree and not the degree that plays vital role. Though this is a very general statement, but is very true with most of the public sector institutions in India.

Role of Leader

The leader at the top of the ladder has key role to play, as he has to chisel to give shape and direction to the institution. Since, most of the secondary leaders are generally selected on the basis of their networking rather than on the basis of their performance, merit or competence, they hesitate in taking right and bold decisions as they remain in constant obligation of their mentors at the top, and look upon them for their nod, or take decisions that please their higher ups. Their personal interest precedes the interest of organization. To them, the vision of their mentor is their mission, and wish as command. Therefore, they generally do not listen to their conscious and evaluate between right and wrong.

Leadership Style

Leaders adopt different styles of functioning. Behavioural scientists, psychologists and management gurus have crystallized various leadership styles in to the following broader categories.

(a) Autocratic: - Leaders practicing this style decide and dictate what others have to do. They believe in Herzberg’s Theory ‘X’ that unless forced, coerced people do not perform. Such leaders keep the reign in their hands and control subordinates with iron hand. They arbitrarily display their strength and consider power and prestige important for controlling subordinates for getting desired results. They neither tolerate subordinates interference, nor listen to their suggestions. They are hard taskmasters lacking sympathy and sentiments for individuals. They often reveal projective and paranoid tendencies.

(b) Democratic: -. Such leaders are sympatic, display humanistic approach, trust people and have human values. They are open to suggestions and respect the views of others. They subscribe to Theory "Y" of Herzberg that by and large people want to perform, and are not shirkers. They believe that their task is to get the job done. They facilitate in achieving goals and act for the welfare of the group. They like to take decisions through discussions, consultation and interaction rather than by dictation. They prefer to help and guide the staff.

(c) Bureaucratic: - These leaders have clear-cut demarcation of work and responsibility. They believe that subordinates should follow dotted lines. They are egoist, ruthless and follow the rulebook. They maintain distance with the workforce. To them, others are not O.K.

(d) Task Oriented: - These leaders are interested only in work and expect high standards of performance. They are workaholics. As they themselves drive very hard, they keep track of progress of work at every stage. Subordinates under these leaders work optimal but driving them too much some times become counter productive.

(e) Laissez Faire: - These leaders are easy goers. They neither guide nor inspire people. They do not participate in determining task and leave it to people to decide. They hardly take part in giving direction and in work discussions. They are counter productive and lack commitment towards responsibility. They are either frustrated lot or inefficient.

Leadership and Public Sector Institution

The leadership styles followed in most of the public Sector Institution are quite different from the styles described in the above-mentioned paragraphs. Microscopic view indicates that the styles practiced in most of the public Sector Institutions in India are to a greater extent influenced by old Scriptures and mythologies. There has hardly been any change even with the passage of time. It gives an impression that we have genetically inherited these leadership styles, which is a mirror of our culture and values system. The impact of transgenic varieties of styles developed by infusing Indian and western styles and what is being taught in management schools which have mushroomed in every nook an corner of the country will be known in times to come.

To understand the leadership styles practiced in most of the public sector institutions, we have to deeply look into the famous epic " Mahabharat”, as most of the styles presently vogue in Public Sector Institutions are the off shoots of the styles followed by different characters of "Mahabharat".

Prominent Characters of Mahabharat

Though all the characters of Mahabharata are important, however, some of the prominent characters are “Dhritrastra”, “Gandhari”, “Bheeshma Pitamaha”, “Sanjay”, “Shakuni”, “Duryodhan”, “Pandavas” and “Lord Krishna”. Their acts, actions had major impact on the events culminated in to war. Though the styles followed by each one of them might have been relevant in the days of yore, however, the styles of some of these characters are still being practiced in one or other form in most of Indian institutions.

The Epic in nut shell

As per the epic, ‘Dhritrastra’, the king was blind. ‘Gandhari’, his wife, voluntarily blinded herself by bandaging her eyes. ‘Bheeshma Pitamaha’, the grand father was bound under the shackles of his vow and could hardly assert and raise his voice against injustice, exploitation and implementation of right things. ‘Sanjay’, was ears and eyes of ‘Dhritrastra’ who through remote viewing narrated the entire affairs of battlefield to him.

‘Shakuni’, brother in law of ‘Dhritrastra’ was revengeful people and was the mastermind behind all the ills and wrong doings. ‘Duryodhan’, son of ‘Dhritrastra’ and ‘Gandhari’, was arrogant, egoist, self centered and suffered from mental hysteria. He was a terror.

‘Lord Krishna’, was a guide, philosopher, a great psychologist and motivator. He logically convinced ‘Pandavas’, nephews of ‘Dhritrastra’ and goaded them for action and performance. He advised them to evaluate the pros and cons of non-performance and insisted that the performance should be done excellently in a planned and professional manner. He advised them that non-performance is not a branch of performance.
The central theme of the epic is fighting for injustice with high moral and ethical values, keeping calm and quite in any vicissitudes and not to subscribe to deceit.

Personality analysis of Characters of Mahabharata and their style of functioning:

1- Dhritrastra- The King

Dhritrastra was not only physically blind, but was also mentally blind. He had shut down both his mental and analytical faculties in the love of his son,and were not willing to listen against him. He turned blind eyes to the wrongdoings of his son and had lost the capabilities of differentiating between right and wrong.

Due to his infinite attachment to his children, he became deaf to the words of warning uttered by the good .The other aspect of his personality was that he was against criticism and not open to suggestions. He was not willing to understand the reality and change his perception and mental vision. He formed opinion on the basis of hearsay and on the feed back of those in his inner circle. Before taking decision or arriving at any conclusion, he neither bothered nor desired to verify the factual position. Since he was averse to obtaining independent views, he could not know the truth. This attitude and approach indicates his mental blindness. Though he was well aware of the wrongs being done in his regime, he did not consider it objectionable so long he or those close to him were not affected. Thus he permitted wrong to prevail over the right, and lived in darkness and delusion.

“Dhritrastra” type of Leadership style

Keeping the above-mentioned characteristics of ‘Dhritrastra’ at the back of our mind, if we analyse the practices followed in most of the public sector institutions in India, it would be observed that by and large, bosses (the leaders) at the top behave like Dhritrastra who are surrounded by courtiers. Courtiers’ deep crust is hard to penetrate. They project and pass on incorrect information in such manner to the bosses that they believe it to be correct. They avoid listening to cross-section of people in the organisation, for understanding ground realities. Thus it gives an impression that those at the helm of affairs are behaving like Dhritrastra. Since they have not only shut their physical eyes, but have also switched off their mental faculties, they remain unaware of ground realities and their perception becomes opaque and foggy.

To obviate problems, troubles and inconvenience, bosses keep distance with the field functionaries and play in the hands of lumpen and direction less elements. However, they fail to realise that their close mindset creates vacuum between them and the field functionaries. Sycophants fill in this vacuum, which results into drooping morale of the workforce.

Confidants of bosses run the organisation by proxy, and he, by remote control. In fact these confidants, instead of helping him in smooth running of the organisation spread the contagious virus of dissatisfaction, discontentment that increases the number of disgruntled persons in geometrical progression. Though well aware, that their action will breed dissatisfaction, these confidants of bosses corrupt the files of dedicated workers in a well-planned manner and sabotage their chances of career progression.

In Public Sector Institutions, people who command power do not listen to any body’s advice. They live in their own little world. Others must say “ yes -yes” to them. That is their nature. They form opinion on the basis of utterances of courtiers. Even though they are conscious to palpable injustices, they do not take corrective measures unless they themselves are directly affected.

Leaders following this style of functioning basically behave like " Dhritrastra”. They are self-centered and are least concerned about others. Their approach and attitude is evasive. They become offensive when posed with problems or approached for solution. In such situations, they adopt insulting attitude and try to find out fault with the person concerned. They pass on sarcastic and offensive remarks. They conceal their vices under their large dignity and position. They love false praise and become deaf and blind to reality and pay attention to those who praise them. Power and position swells their head. They hate genuine criticism. Ruthlessness and threats are their influencing power. Such leaders are opportunists, egoist and have no sentiments even for those on whose shoulders they had climbed. Their preconceived notions hardly change. This style of functioning is very similar to that was followed by "Dhritrastra".

2- “Gandhari” –The Queen

The next important character of ‘Mahabharat’ is Gandhari.Though not physically blind; she deliberately blinded herself by bandaging her eyes not to enjoy those things, which her husband could not. She became blindfolded not only out of respect for her husband, but to have empathy and to experience the turbulence, which a physically handicapped person under goes both physically and psychologically. She shared the darkness through out her life, so as to provide both psychological and moral support to her husband.

‘Gandhari' cautioned her husband about the rowdyism, wrong behaviour and approach of their son“Duryodhan”, so that before it was too late, corrective measures could be taken for behaviour modification. She had foresight and conviction that affection is not a blind duty. Love and affection did not deter her to condemn the attitude and approach of her son. However, despite all the authority and power at her command, she did not to take corrective measures to mend her son and ignored his wrong doings. She did not assert, but displayed her helplessness.

Since, ‘Dhritrastra’ was not serious towards the behaviour of his son and had adopted casual approach, he did not pay any heed to the concerns of his wife. As she never wanted to give an impression down the line that there was discord between husband and wife, she preferred to compromise with the situation and to obviate slanderous messages percolating down, vitiating the atmosphere in the monarchy. She had high level of tolerance. Her approach and attitude reflected her mental architecture.

“Gandhari” type Leadership style

When number two in the organisational hierarchy blindly follows the footprints of number one, he imitates ‘Gandhari’. Once the second in command in an organisation feels that the things will move only as per the dictates of number one, that he has either no say in the matters, or his suggestions would be brushed aside and ignored, he adopts escapist attitude and does not exert. He neither takes initiative nor responsibility. The law of inertia governs him. He takes refuge in his own shell, binds himself in self-created shackles so as to avoid conflicts and controversies. Though he tries to avoid personality clash with number one in the hierarchy, his outer expressions and behaviour pattern do not match with his internal feelings

Since such leaders are themselves not assertive, they want others to behave like " Jelly Fish”. They avoid taking decisions and if forced, delay in taking decisions. Even for taking petty decisions, they look at the top. They always look for protective umbrella. Leaders like ‘Gandhari’ know how to project even without having an ounce of substance in them. They are unpredictable. They take committed, dedicated and intelligent subordinates for performance so that their own inefficiency is not exposed, and they can easily pass on blame on others. Once they are in power, in the same institution, they vomit venom and take revenge form those who had not given importance in their bad period.

3- “Sanjay ” –The remote viewer

The third character in the epic is Sanjay. He had the periscopic view of the events. He not only understood ins and outs of the life’s game, but could also visualise it. He was a remote viewer and narrator of the events of the war. He knew the amount of trust and confidence ‘Dhritrastra’ had in him. His proximity made the bondage stronger and gave him enough power to convince and tilt the views to the desired level, which he avoided. He was well aware of the weakness of the king and his mental frame. Therefore, he tactfully narrated the bitter part of the war. He spoke the truth, which was palatable and pleasing, and modulated his voice and tone to avoid king’s anxity, which was increasing with the narration, and was becoming impatient to hear the success and valour of his army. He censored the information and revealed what ought to have been. He knew that selectivity plays important role in listening. People prefer to listen to melodious and pleasing tunes, and pick up only those signals. Non-palatable transmissions are always blocked.

Following “Sanjay ” style

Leaders / Executives who are non-approachable, non-assessable rely on second hand information provided by their confidants, even when the 1st hand information is available. They develop strong biases on the basis of utterances of confidents. Due to some obvious reasons, bosses do not come out of the cocoon and continue to listen to the nursery rhymes recited by people around them and see the organisation from their coloured glasses. They suffer from ‘Gee-Hajoori’ or ‘yes-Boss’ syndrome. The adverse effect created by confidants’ affects performers. They become victim of misrepresentation, misinformation and wrong projections.

Though ‘Sanjay’ of Mahabharata was honest and fair, but modern sanjays are not. Sanjay type people are transplanted in the system for internal surveillance and for gathering and passing on such information to the authorities, which may give them commanding, position. They act as concealed antenna and radar for the boss.
The closeness to the bosses is not necessarily linked to on the job performance. In most of the cases, closeness is due to off the job qualities. They wield power due to the proximity with those in power and authority and exploit people. They act as opinion maker.

4- “Duryodhan” –The spoilt brat

The fourth character of the epic is ’Duryodhan’, the son of ‘Dhritrastra’. Being a spoiled child, he was full of anger, merciless, ruthless, intolerable and unpredictable. He was self-centered, sarcastic, obstinate, restless and over anxious. He could go to any extent for fulfillment of his ego-based desires. He was threat to others. He always criticized others and lacked farsightedness. He considered others to be useless. He always desired that his demands, whether legitimate or illegitimate be fulfilled. Those coming in his way were his biggest enemies. He always desired to have upper hand by hook or crook. He was always in look out for the weaknesses of others and exploited them. He was driven by instinct and not by logic or reason .He nurtured crime.

“Duryodhan”type Leadership style

A leader following footprints of ‘Duryodhan’ subscribe to the philosophy of organisational terrorism and govern through organised threshes. Threats, bullying are their mode of operations. They practice non-physical psychological violence and mental assault for getting the job done. Their behaviour is offensive, vindictive, malicious and humiliating. They gang up targeted employees and subject them to psychological harassment by negative remarks or criticism and isolate them from social contacts. They undermine an individual or group of employees through various activities and make life miserable and difficult for those who have potential to perform with excellence. They assign unimportant and useless tasks to capable and efficient workers and kill their zeal. They search demerits in merits and discard logic. They are selfish and may have lower capabilities. They keep highly qualified, experienced and straightforward workers at a bay and discourage and demoralise them. Threats of inconvenient posting, placement, transfer, denial of promotion, non-recognition and non-appreciation of good work, constant nagging, and humiliation are their traits. They deprive legitimate rights to deserving candidates and bestow favoritism to undeserving candidates close to them. They create uncongenial environment in the organisation. Power makes them blind. They fail to realise that power does not remain indefinitely. That in the beginning man acquires power due to his ability and later looses ability due to power. Their policies change as per their whims.

5- “Shakuni” –The troubleshooter

The fifth character of the epic is ‘Shakuni’, brother of ‘Gandhari’. He was an advisor and consultant to ‘Duryodhan’. He had sharp brain, however, he channelised his energies and talents towards destructive purposes. He knew how to create differences and problems for others. He was a villain and enjoyed at the cost of others. He was an expert in creating anti feeling and background against others. He was well aware, that ‘Duryodhan’ was the weakness of both ‘Dhritrastra’ and ‘Gandhari’ to whom they could never dare to displease or oppose and could not turn down even his unjustified, irrelevant and illegitimate demands. ‘Shakuni’ inflated ‘Duryodhan’s’ desire for power and vomited venom against Pandavas. He created mistrust, chaos and bad blood. He instigated Duryodhan to eliminate Pandavas, the real owner of the kingdom, by hook or crook.

“Shakuni ” type Leadership style

Bosses following footprints of ‘Shakuni’ are experts in instigating, humiliating, demoralising and exploiting subordinates. They create artificial chaos and panic in the organisation. They blackmail and project weaknesses of even those who trust them and share secrets and confidential matters. They know how to demoralise opponents and de-motivate and kill them psychologically. Since, they are close to power and position they exercise unauthorised control over others. In this style the leader plays one against others and enjoys at their cost. They nourish and nurture crime. They fail to realise that organisation suffers with the demoralised staff.

6- “Lord Krishna”- The Architect and his style

The Sixth and most important character of epic ‘Mahabharata’ is ‘Lord Krishna’. He was mentor and well wisher of ‘Pandavas’. He had both mighty and dynamic personality.
He sided with justice, fairness and propagated peace. He led ‘Pandavas’ in the war for their rights and continued to guide them at each stage with expert knowledge. He made them aware of their duties and responsibilities and advised that tolerating injustice is cowardice. Sentiments should not come in the way of performing duties as it influences ability to take right judgement.

He was an expert in the art of inspiration, persuasion and motivation. He knew the art of accessing productive potential and invoking dormant productivity.

He had excellent analytical power and foresight. He knew the art of putting forth truth logically from different angles so that misconception, misinterpretation and shrouded vision become crystal clear. He was an experienced and practical person who knew that convincing is an art of motivation.

He knew how to reinforce confidence and inspire energies and rejuvenate talent, abilities and capabilities. He knew how to use emotional intelligence and gave constant positive strokes for achieving the desired results. He was an efficient and effective organiser, a strategic planner having clear goals in mind with commitment to achieve them. He was firm, but open to suggestions. He believed in two-way communication. His communications were precise, clear and without any ambiguity. He knew when to blow hot and cold and kept equilibrium in different vicissitudes. He knew how to tackle individuals both emotionally and psychologically and extracting excellence even in the midst of difficult situation.
He removed doubts from the minds of ‘Pandavas’. Clearly advised them their role, duties, responsibilities and constraints so as to enable them to prepare well in advance for facing unknown challenges. He constantly showed confidence in the team, guided them and gave both moral and psychological support. He believed that once the challenges are known, commitment inspired, the task would be achieved. He believed that every one has potential, which has to be surfaced. He subscribed to the philosophy that when there is dedication, devotion, commitment and zeal to achieve goal, reward becomes secondary and meaning less. In that event people only crave for recognition and self-actualisation. Reward is not prelude to performance.

He firmly believed that success does not come from deceit, that inactivity is not a part of activity. Non-performance is not the branch of performance. Inertia has no place in the society. Performance is sine qua non for survival. He considered every individual to be potential performer and knew the art of harnessing dormant potentials. He believed that once internal consciousness is evoked, people change, and even a non-performer becomes performer. By and large, people want to perform but lack of skill, confidence and non-conducive environment plays negative role. He considered every person as potential performer and did not discard any one out rightly. This was the reason that ‘Pandavas’ won the battle with handful persons as against a big battalion of ‘Kauravs’.

What Leaders should do?

A leader (boss) should know that work place is not a godown of human and mechanical things. Organisation is a living organism and has to be sensitive. It has to pulsate. We cannot see beneath the mind of workforce but can understand from their approach the inner turbulence. We see a bubble bursting on the surface of water but do not see it coming from the fathom of the lake.

A leader has to understand that the performance is much influenced by his approach. He has to control his emotions, modify his attitude and create congenial and transparent atmosphere in the institution. He has to understand that the power vested in him is for inspiring positive attitude, energy and not for exploitation. Arrogance and pride has to be shed away. He should have firm determination to face challenges with calm posture and balanced mind. He should not loose his nerves and should not jump to conclusion. He should have both far sight and foresight. He should be fair and friendly to all but familiar to none. He should know that

“Work can be full of joy provided there is love in heart…………………….While working, you are not only working but also expressing your personality at work”.
(Universal Message of the Bhagvad Gita- {Volume –I, page 432} by Swami Ranganathandaji, President of Ramakrishna Math & Ramakrishna Mission)

Leadership in India

We lack good leaders in India. Instead of having leadership, we have ladder-ship in organisations. Bosses do not know how to solve intellectual impatience of workers and how to invigorate them, revive their drooping enthusiasm, morale and confidence. By and large, they are selfish, self-centered and not above social malice. They are guided by pair of opposites and do not know how to make the workforce release him or herself from all mental preoccupation and make them live in joy through work. Workers therefore, loose faith in the wisdom of leaders.
In Indian organisations there is existence of cult of bossism and cabin ship. Those occupying cabins consider them to be powerful but they fail to understand that they are untouchables; hence they have been kept in quarantine. The culture of facilitator ship is absent. This is the reason for prevailing mistrust and absence of self-propelling zeal for performance.

Though India has given good leaders like ‘Lord Krishna’ and ‘Lord Rama’ to the world, however, there is hardly any leader who has a little strain of their leadership traits, qualities, who can work with determination and with the quality and capability to infuse zeal even in the dead woods?

Customer Service in Banks

                         Indian Banker,Volume.III No.10,October 2008
In the era of technologically backed competition, awareness level of customers is increasing day by day. Expectations of customers from banks are increasing as they have wider choice of products and services. The concept of generation to generation banking has also undergone changes. Customers’ loyalty is now conditioned by the quality of products and its delivery mechanism i.e. service. All these have necessitated the banks to provide better and excellent customer service.

Who is a customer?

The word customer has been derived from "custom," meaning, "habit”. As per the literal meaning, a customer is someone who is in the habit of buying or receiving goods or services from the same business organisation. A customer is someone who makes use of or receives the products or services from an individual or organisation. In general term a customer is a person who has some regular commercial dealing.
As per Section 131 of Negotiable Instruments Act 1881, a bank gets protection when it collects instruments (cheque, draft etc) for and on account of his customer. For depositing a cheque or instrument, a person has to have an account with the bank. Therefore, it transpires that to be a customer of a bank account relationship is must.
Economic developments have popularised the services of banking industry and have widened its scope. Banks provide many services for which account relationship is not at all required, for example for issuing a banker’s cheque, demand draft or travellers cheque etc. Therefore, treating account relationship to be the only criteria for being a customer does not appear to be logical.
Banks are using multiple channels to make masses aware of its various products and services. Making masses aware of various products and services is an offer or invitation to the public to avail facilities of the bank. Therefore, customers can be broadly classified in to following three categories.
1. Those who already have account relationship with the bank.
2. Those who do not have account relationship, but make use of the services provided by the bank.
3. Those who have been motivated to deal with bank by advertisements, personal contacts etc., i.e. prospective clients.

What is service?

Service is an activity or benefit that one party offers to another. It is about people thinking about taking care of people. It is an ongoing process of commitment in action and selling of satisfaction. It is a feeling, which a person gets while dealing with an organisation. It is experiencing the experience.
Services are people based, therefore they are highly variable and inseparable from the source i.e. employees. Service is essentially intangible and does not result in the ownership of any thing. In economics and marketing, a service is the non-material equivalent of goods.

What is Customer Service?

Customer service is the set of behaviors that a business undertakes during its interaction with its customers. It is the degree of assistance and courtesy granted to those who patronize the organization. It is anticipation and identification of customers’ needs and expectations and taking action for positive customer satisfaction. It consists codes of ethics, etiquette, behavior courtesy etc.

Necessity for Good service?

Banking a service industry is facing fierce competition. Competition is not only in price of the products but also in the service. Banks are practically coming out daily with new products to suit various segments of society and to have a hold both in the existing and virgin market for keeping competitors at a bay.
Good customer service does not need publicity. It is felt. It speaks on its own. The praise coming from the mouth of a satisfied customer has lasting effect on those who come in touch with him. Excellent customer service is one of the few ways to achieve a sustainable competitive advantage. A customer does not mind paying higher price provided the product is good and is backed by excellent pre and post sales service. It is the quality of service that matters. Customer service has direct impact on the working of bank and on its profitability.

Peculiarity of service

Services are highly variable as they depend on the service provider. We can see the service provider but not the service. We can see him attending to the customer. We can see the product but not the service. Service cannot be seen, tested, felt, heard or smelled before they are bought. It cannot be stored. Services are intangible, inseparable and perishable. With the passage of time, the quality of service deteriorates as it has human element.

What is Satisfaction and dissatisfaction?

Satisfaction is human experience. It is the positive feeling of happiness and contentment, which a customer has after getting service from a bank. It is the customer who defines satisfaction. Customer satisfaction involves understanding customer expectations and meeting them. It is bridging of customers’ psychological, emotional and business needs. It is comparison of expectations versus perception of experience.
Perceptual experience concerning the service provider has an impact on the satisfaction of customer. Personality of the service provider, his etiquette, expressive and verbal behaviour gives stimulus impression to the customer.
An organisation achieves high levels of customer satisfaction by exceeding customer’s expectations about the quality of product, service, and the price. Higher the satisfaction, higher the business levels. Lower the satisfaction level, more likely the customer may stop dealing with the bank or migrate to other bank.
Non meeting of customer’s expectations results into dissatisfaction. Dissatisfaction is the negative feeling of happiness that a customer gets after he had dealing with the bank. The neurosis born out of a bad experience has subtle and lasting effect on a customer. He would, instead of recommending the bank to others, would highlight his negative experiences, which may ultimately jeopardize bank’s image.
A customer may feel unhappy, dissatisfied if the service is done carelessly. He may not particularly feel satisfied when the service is done carefully. It may not be true that providing prompt service causes satisfaction and delay causes dissatisfaction. A customer feels happy when a banker does what he is not normally expected to do. Feeling of satisfaction depends on an individual. It depends on his urgency, expectations, and belief. If it matches with his expectations, he considers it to be ok.
A service may be satisfactory for some one but may be unsatisfactory for other. There are no common parameters for measurement of satisfaction level since satisfaction is very personal. However, by and large customers have some minimum expectations from a bank. Banks may minimise dissatisfaction by providing prompt service and amenities to customers.

Remedying dissatisfaction

If a customer is asked to measure his level of dissatisfaction from the services on a five-point scale, depending upon his dissatisfaction, he would rank services anywhere between zero to minus 5 i.e. on the negative side of the scale and if he is asked to measure his level of satisfaction, depending on his satisfaction level, he would rank services anywhere between zero to plus 5 i.e. towards the positive side of the scale.
In the event of his dissatisfaction with the services, he can be brought to zero level after the causes of his dissatisfaction i.e. irritants are removed. At zero level the customer is neither satisfied nor dissatisfied. Zero level is that point of service, which bank personnel are supposed to provide.

Measuring satisfaction/dissatisfaction on a five point scale

______________________0_______________________

Negative - 5 - 4 - 3 - 2 - 1 Zero level + 1 + 2 + 3 + 4 + 5 Positive

At zero level, bank personnel perform duties as per the set rules, regulations and procedures of the bank. They do not deviate, and go out of the way even if they have discretion to do so.

To work within the framework of rules and regulations is only a formality of performing duties in a routine manner. Providing services in a routine manner gives contentment feeling of routine nature, which is neither satisfaction nor dissatisfaction.
For providing satisfaction, customer has to be brought to the positive side of the scale i.e. anywhere between zero to plus five range .The bank and the staff has to give some thing extra to a customer which he would never have imagined or expected. Doing some thing extra is the customer satisfaction. Providing satisfaction is an art.
The example given below will illustrate the point that “removal of dissatisfaction is not satisfaction”.
Presume that on a very hot summer day, a man is very thirsty and his throat is choking i.e. he is on the negative side of the five-point scale. Offering him plain water will quench his thirst and he would be brought from negativity to zero level. At zero level he is not thirsty, since the cause of his dissatisfaction has been removed i.e. requirement of water has been met. At zero level he is neither dissatisfied nor satisfied.
Suppose instead of plain water, the same person is served cold and chilled water how would he feel? Would it not only quench his thirst and give him internal feeling of contentment and satisfaction? This feeling of contentment and satisfaction is derived from cold and chilled water, which he was not expecting. Similarly doing some thing extra that is not expected from a bank staff gives satisfaction to the customer.
There is no standard yardstick for measuring satisfaction. Every customer has his own measuring rod of satisfaction. Banks too have their own standard of measuring customer satisfaction. What banks feel may satisfy a customer may not be what a customer feels.
Customers at times do not have a clear understanding of their needs. Assisting customer in determining needs is a valuable service to them. Both customer needs and expectations can be determined through interviews, surveys, conversations or other methods of collecting information.

What does a Customer expect?

Every customer desires that he should be welcomed in the bank premises. He should not get an impression that he is unwanted person in the premises. He expects staff to behave politely, with courtesy and in a friendly manner.
Customers desire that they should be attended without loss of time and their work should not only be done on priority but should be done perfectly and without mistakes. Therefore, it is essential that the staff members attending to customers have full and complete knowledge of work and other related issues and above all they should be polite and courteous.
Customer expectations are based on perceived values of facilities or service vis a vis his specific needs. He seeks value-for-money. Therefore, he selects from a range of products/services before opting for the same. Cultural values, advertising, marketing, and other communications influence customer’s expectations.

Customer Complaints

Complaining customers have several needs. They alert the organisation to systemic problems. Complaints are not nuisance. Complaints are the symptoms of disease prevailing in the service or in the product that needs to be cured. It helps in identifying and knowing what has gone wrong - so that remedial actions may be taken.
Complaints are not to be overlooked. It should be acknowledged, carefully handled, investigated, and the cause remedied. Customers notice the way a complaint is handled. Solving the problem of a customer helps in building his confidence and allegiance to the bank. Customer has to get the feeling that bank understands their displeasure and sincerely feels for them. Banker should not overlook emotional component in complaints. Holding on complaint damages banks’ image.
In our country most dissatisfied customers do not complain but suffer in silence or they tell their friends. The reason is that no one listens but tries to find fault with the complainant. Employee’s representatives take side of erring staff and make complainant feel guilty. They ignore that banking is a hospitable industry and not a hostility industry. Accepting mistakes does not make a man small but indicates his moral character and helps in bridging the differences.
With the introduction of technology, complaints are sent through e-mails. In some organisations the computer generated reply assures that the complaint will be looked into within 24 hours and grievances attended within 72 hours. However, it is observed that no steps are taken to pacify the customer with in the assured time schedule, which gives bad impression about the service and the culture of the organisation.
Customer Care should be the culture and philosophy of a bank, which needs to be demonstrated. In his book on "Marketing Imagination," Dr. Theadore Levitt of Harvard Business School has mentioned that "Profit is a requisite, not a purpose of business. The purpose of a business is to create and keep a customer."

Data Based Customer Service:

Requirements of customer service differ from person to person, which is governed by age, educational background, profession, vocation and environment. Service requirements of businessmen are different from that of pensioners, medical practitioners, office goers, householders, those who have college-going children or those who have recently started their married life.
Customer satisfaction enhances when bank tailors services on the basis of data. It also helps in building cordial relationship with customers. Data based strategy is the intellectual approach which helps banks in identifying and customizing service requirements of various groups and sub groups of customers. It also helps banks in chalking out strategies for serving customers in a professional manner and capturing larger market share.
Customer focused thinking enables bank in building rapport which brings customers closer to the bank. Building relationships makes most sense for customers whose lifetime value to the bank is the highest. It also creates opportunities for cross-selling of products that makes the overall relationship profitable.

Technology and Service:

Technology is rapidly changing the face of banking industry and enhancing the demand for better than the best services. It is helping banks in breaking the bottlenecks in superior customer experience. Technology has made the world a global economic village. Banking services are no more confined in brick and mortar environment. Technology has made it possible to transact business any time, anywhere and from any branch office of a bank.
Transactions can be done through automated teller machines or even from a remote area through Internet, a virtual environment created at “ World Wide Web”, where human interface is not required in attending to customers and in providing service. The days are not far when robots may be available in providing services in banks. At least they will neither misbehave nor ill-treat customers.
Customers appreciate not only consistencies in services but also hassle free interface with the technology. The level of frustration and dissatisfaction escalates when customer encounters problems due to technology either while transacting business on site or off site. In the event of his facing problems while transacting business off site i.e. through ATMs, Internet, he broods, as there is no one to appreciate and solve his problems, and mechanical devises are insensitive to his feelings.
While dealing at the branch level i.e. on site, a customer gets bad impression about the services when he comes to know that either the server is not responding, or there is no net work connection or transaction has not been uploaded or the pass book printer is out of order and so on so forth. Under such situation positive and helpful attitude of bank personnel acts as antidote for frustration and dissatisfaction and gives healing touch to customers.
Banks can find out level of popularity of its services from the number of hits on its site. It can also find out preferences for its products and services, and can design state of art services. It can maintain contacts by enquiring from the person visiting the site whether he is interested in any particular product or would like to be informed of bank’s products at regular intervals. By obtaining clients’ preferences, personal details, e-mail address etc., bank can build lasting relationship with him. Sending e- greetings on festive and special occasions will give soothing feeling to both existing and prospective customers.

Conclusion:

A customer deals with people who work in the bank premises. He does business only with people. Staff members have to realise that every interaction with customer is an opportunity to make positive impact on him. The person dealing with the customer has therefore to create positive impressions that are memorable and help in building confidence. They have therefore to bear in mind what Confucius said " What you do not want done to yourself, do not do to others”. Once we keep in mind the sayings of Confucius, it will automatically result in improvement in the services.
In the present scenario when competition is tough, the best way for survival is constant touch with the customers and letting them know what bank can do for them.
A banker has to be sincere and thoughtful to customers. Sincerity creates confidence. This is the most important reason for a customer to do business with the bank. Banks have to create such service environment that it becomes apparent to customers that doing business with the bank is easy and economically beneficial to them and it is totally stress free.
If we want our customers to be loyal, we have also to be loyal to them. We have to provide them excellent services. This will result in increase in the number of profitable customers. Banks have to realise that it is not the customer acquisition, which is important, but their retention is important. Banks have to provide quality services so that customer do not defect and migrate to other institutions. Banks have not only to measure and manage customer satisfaction on regular basis, but have also to find out the reasons for their defection.
A banker has to be more customers focused than operations focussed. Operations focussed bankers do the job without deviating from the norms. Customer focussed banker is solution oriented he is flexible and does the right thing both for the bank and customer.

Prevention of Automatic Teller Machine Fraud

                                           IBA Bulletin ,Volume 1(9)2006
1-Background: -

The dawn of Twenty first century saw lots of technological developments in the banking industry in India. This pace of technological developments is continuing unabated. The technology has made it possible for a customer to transact business on line, any time from any location.
The need to visit bank premises for cash withdrawal or for depositing cheques/instruments is no more necessary, as these transactions can be undertaken through Automatic Teller Machines which are installed at different prominent and convenient locations by banks. ATMs have now become part of modern life. Millions of ATM transactions are successfully carried out every day around the globe. It is also possible to use ATMs installed by other banks under arrangement.

The whole object of implementation of technology is to provide convenience to customers, a sine-qua-non for better customer service. Well, if the technology is used in right perspective with sufficient amount of controls and care it is a boon, otherwise it is a bane as banks may be caught in fraud traps.

2-What is an ATM?

Automated Teller Machine is an electronic machine, which is linked to the accounts and records of a banking institution. It enables customers to carry out banking transactions without visiting bank premises. ATMs are virtual banks, which allows the user to withdraw cash, pay bills, balance inquiries, cash deposits etc. The machine is operated with the help of an access device, which is a card, code (Personal Identification Number), or through other means of access to a customer’s account, or any combination thereof. Some ATM cards are also debit cards, which can be used for making purchases. Customers’ account is charged immediately on purchases.

3-Technology and frauds:

Banks in India have tasted the fruits of technology in the near recent past, and some of them are still in the process of experimentation. Introduction of technology has created two sets of employees; those who have technological background and knowledge and those who do not have technological knowledge but have working knowledge. Such employees have learnt to handle day today operations. These employees are merely showpieces as they raise their hands as and when the system crashes during the working hours. Due to paucity of technologically trained staff, the banks have out sourced technological services and have entered in to maintenance / service contracts. Generally the branches rely heavily on the service provider for support. The representative of the service provider mingles with the staff and many times helps the branch even in day today routine banking operations. Thus the staff of service provider has access to the records maintained in the system. Even minor modifications by the representative of the service provider in the programming can create financial havoc, and by the time it comes to notice the irreparable damage might have been done. The involvement of the service provider in day today banking operations exposes the bank to risk. Unauthorised change / modification in the system is a crime which may ultimately result in to fraud. Banks have to be cautious in this regard.

4-Frauds related to ATMs:

Frauds relating to Automatic Teller Machines may be committed both by outsiders and insiders. It is understandable that as the number of transactions rise, the number of fraud occurrences will rise as well. However, it would not be proper to say that ATMs have become more susceptible to fraud.
Frauds can occur due to the negligence on the part of the cardholder or due to lack of alertness on the part of the bank. If the cardholder does not follow the common precautionary measures as mentioned below, he is exposed to risk.

5-Frauds may occur in a variety of ways:

1. A cheat may go through the discarded receipts or carbons to illegally find out the card number.
2. A dishonest clerk makes an extra imprint from credit card or charge card for his or her personal use.
3. Card Holder may receive a postcard or a letter or telephone call advising that he has been selected by computer through random draw for a free trip or a bargain-priced travel package or a costly gift at a throw away price. For availing the advantage of the gift under the lucky draw, the cardholder has to contact at a particular telephone number. He is asked to furnish credit card number for becoming member of the resort so that he can be billed for the membership fee, or for token price of the gift which is being offered at a throw away price. However, instead of getting the product or services promised the account gets debited.

6-Fraud protection Guidelines: -

6.1-For customers

Common sense is the best guide to using an ATM safely. While using an Automated Teller Machine (ATM) you need to know the following: -

a)-Related to PIN & Card->

1. Protect the secrecy of your Personal Identification Number (PIN). Protect your ATM card as you protect hard cash.
2. Do not keep your Bank ATM Card and personal identification number (PIN) together. Do not write PIN on the card or at a place where it can be discovered.
3. Do not give information regarding your ATM card or PIN over the telephone to anyone even one claiming to be from your bank. Criminals who fraudulently use cards for telephone and online transactions do not have to give a personal identification number (PIN) or signature to the merchant on the phone or online. The charges are simply debited directly to your account. You would not come to know until you get your next bank statement.
4. Neither lend your ATM card to anyone nor reveal PIN to another person. Doing this may tempt that person to conduct transactions using the card or PIN.
5. Before disposing old cards, cut them up through the account number.
6. Carry only those cards that you anticipate you will need.
7. Sign your new cards as soon as you receive them.
8. Keep a record of your card numbers, their expiration dates, and the phone number and address of each bank in a secure place.
9. For protection of ATM and debit cards that involve a Personal Identification Number (PIN), keep your PIN a secret. Do not use your birth date, phone number, house numbers as the PIN.
10. Do memorize the PIN.
11. Change your ATM PIN at least once every 2 months
12. The best protections against card fraud are to know where your cards are at all times and to keep them secure.

b)-Related to withdrawals->

1. Remember not to leave your card at the ATM.
2. Never allow yourself to be distracted while carrying out your transaction.
3. Do not accept assistance from anyone you do not know when using an ATM.
4. Do not display your cash, pocket it as soon as the ATM transaction is completed and count the cash later when you are in the safety of your own car, home, or other secure surrounding.

c)-Related to ATM->

1. If you are using an ATM that requires your card to open the door, do not permit an unknown person to enter with you. Once inside the vestibule, make sure the door is completely closed behind you.
2. Choose an ATM that is well lighted and monitored by a surveillance camera or a security guard.
3. Minimise your time at the ATM. Have your card ready. If you are making a deposit, fill up paying in slip (deposit slip) at home, seal the envelope before you reach the ATM.
4. Use your free hand to cover the ATM keyboard while you type in your Personal Identification Number (PIN). Prevent others from seeing you enter your PIN by using your body to shield their view.
5. Do not re-enter your PIN if the ATM swallows your card. Contact the bank immediately.
6. Use an ATM only where and when you feel completely comfortable.
7. Pay attention to the machine before using it. If something appears unusual or unfamiliar, use another ATM.
8. Never use an ATM, which looks suspicious.
9. Never use ATMs that have messages or signs fixed to them indicating that the screen directions have been changed, especially if the message is posted over the card reader.
10. Do not insert your ATM card into an obscurely placed ATM machine, or one with a card slot protruding from the face of the machine.

d)-Related to surroundings->

1. When you make a transaction, be aware of your surroundings. Before proceeding with your transaction, look around to guard against surveillance by anyone who may arouse your slightest suspicion.
2. If you suspect something is not quite right, trust your instincts. Use an ATM or a bank branch where you feel more comfortable. If possible, use a machine that is located in a bank location. It may be easier for criminals to tamper with a machine that is in a non-bank location.
3. Report immediately any suspicious activity or crimes to both the bank and police.
4. If you see anything suspicious, immediately cancel your transaction and leave. As soon as possible confirm with your bank that the transaction was indeed canceled.
5. At a drive-up ATM, keep your engine running, lock all your doors, and close all windows except your own.
6. When using an indoor ATM, be sure to lock your car and take your keys with you, do not ever leave your car running.
7. Look out for suspicious activity or if there are suspicious looking individuals in the vicinity near the ATM particularly if it is after sunset. At night, be sure that the facility (including the parking area and walkways) is well lighted. Consider having someone accompany you when you use the facility, especially after sunset. If you observe any problem, go to another ATM.
8. If you notice anything suspicious or if any other problem arises after you have begun an ATM transaction, you may want to cancel the transaction, pocket your card and leave. You might consider using another ATM or coming back later.

e)-Related to Loss/theft of card->

1. Report the loss, theft or unauthorized use of card or PIN to Bank without any loss of time. A stolen ATM/Debit card can be taken to any merchant and used to charge purchases to your "account." All that is needed is a forged signature. This can drain your account.
2. Once you discover the theft, you must report it to the police, close your account, open a new one and get new bankcards.
3. If you find electronic banking transaction is incorrectly reported on a receipt or statement, promptly notify the bank. Failure or delay to promptly notify Bank of the loss, theft, or unauthorised use of card or PIN will keep you exposed to risks.
4. If you notice transactions you did not make, or if your balance has dropped suddenly without activity by you, immediately report the problem to your bank. Some one may have co-opted your account information to commit fraud. Use the special telephone number that many card issuers list on their billing statements. Do not forget to follow up your phone call with a letter.

f)- Related to other miscellaneous activities ->

1. Always request a receipt for your transaction. Compare your records with the account statements you receive. Mark each transaction in the statement of account, but not while at the ATM.
2. Always save your ATM receipts. Do not leave them at the ATM because they may contain important account information.
3. Carefully check ATM or debit card transactions before you enter the PIN or before you sign the receipt; the funds for this item will be fairly quickly transferred out of your account to other account.
4. Do not sign a blank charge or debit slip. Draw a line through blank spaces on charge or debit slips above the total when you sign card receipts so the amount cannot be changed.
5. Tear up carbons and save your receipts to check against your monthly statements.
6. Ensure the card is swiped in your presence.

6.2- Guidelines for Banks: -

Many banks have outsourced maintenance and cash replenishment services for Automatic Teller Machines. Though the outsourcing has been done to concerns of repute, still the chances of banks suffering losses can not be completely eliminated as human element is involved and one can not predict what undergoes in ones mind. Banks have therefore to be vigilant at each and every stage. It is not the reputation of the firm but the intention of its employee that matters.

6.2.1 Related to Cash Replenishment in ATMs: -

The staff of the agency that has been awarded cash Replenishment contract in ATMs opens the machines, removes the cassette (bin) containing left over cash and replaces it with cassette (bin) filled with currency notes. The bank reimburses the service provider as per the contract.

1. At the time of removal of cassette (Bin), if the bank officials do not verify the left over cash, there is a probability of over billing the amount by the agency.
2. The bank has to call for details of residue cash in each ATM on a day today basis and has also to do surprise verification by counting residue cash. If this procedure is not adhered to then the bank is exposed to financial risk.
3. The bank has also to find out the amount of cash withdrawn from each ATM and whether the amount withdrawn and the residue amount in the bin tallies with the amount fed by the agency.
4. Bank should understand that the cash in ATMs is cash in hand hence it should be physically verified at regular intervals.

6.2.2-Related to internal control mechanism: -

Poor control by the bank over unused cards, PINs, returned mail, credit limit increases and changes in addresses can contribute to credit card and ATM card frauds. Delay in payments to merchants and payments from card holders could signal the beginning of problems with a third party service (generally an outside marketing agency)

1. Separate the duties between the card issuing function and issuance of Personal Identification Number (PIN).
2. Have proper control of unissued cards and PIN. Have periodical verification.
3. Act promptly on returned mail and Customer complaints.
4. Have proper control of credit limit increases
5. Change in address should be recorded without any delay and confirmation to be sent.
6. Ensure that there are no unusual delays in receipt of cards and PINs by the customers.
7. Ensure those payment authorization system functions correctly and there no frequent malfunction is reported.
8. Follows “know your customer norms” and do not open Credit card merchant accounts without obtaining any background information on the merchant.
9. Be careful, if Credit card merchant account activity reflects an increase in the number and size of charge slips. Merchant has a sudden or unexplained increase in the level of authorisation requests from a particular merchant location.
10. Credit card merchant account deposits appear to exceed the level of customer activity observed at the merchant’s place of business.
11. Keep a track to find out if member establishment is depositing sales drafts made payable to a business or businesses other than the business named on the account.
12. Have a watch on the account, if member establishment frequently requests telegraphic transfer of funds from the account to other institutions in other parts of the country or to almost immediately after deposits are made.
13. Merchant is engaged in telemarketing activities and is the subject of frequent customer complaints.
14. Though the member establishment has access to EDC (Electronic data capture) equipment but frequently inputs credit card account numbers manually.

7-Suggested Action for bank to save guard itself from risk: -

1. How many persons use ATM at a particular location?
2. What is the average daily withdrawal from a particular ATM.
3. Whether the amount withdrawn meets replenishment?
4. Is there sudden spurt in withdrawals from an ATM at a particular location?
5. Whether cash is withdrawn frequently through an ATM card from different locations.
6. Whether frequent complaints pertaining to insufficient cash are received in respect of an ATM located at a particular place?
7. Whether every day the one particular person replenishes cash in the bins of ATM and removes the bin containing residue cash?
8. Whether non-ATM cardholders visit the place immediately after the ATM was operated by an individual?
9. Review customer complaints, no matter how insignificant they appear to be.
10. Be sure proper controls are in place at all points throughout the card issuing and transaction processing functions
11. Review possible causes of frequent malfunctions of the payment authorisation system and follow up on remedial actions taken by the institution.
12. Conduct on site inspections of merchant’s operations.
13. Monitor the traffic at ATM.

8- Points about ATM Crime

E-mail and Internet-related fraud schemes are being perpetrated with increasing frequency, creativity, and intensity. With the help of latest technology, fraudsters dupe innocent consumers through, ATM and Internet. Knowing the latest trends in the scamming can protect from being duped. While it is difficult to guarantee protection from ATM scammers, there are security tips that lessen the risk. Never use suspicious looking ATM or odd-looking equipment or wires. Always, monitor your accounts regularly to make sure that there is no unusual entry in the account. Although there is no conclusive evidence on the precise methods used in the suspected fraudulent cases reported so far, it is suspected that at least some involve tampering with ATMs. A few of the methods adopted by fraudsters are as under.

8. 1-Phishing :-

Phishing is the center stage in Internet scams. It is the practice of sending emails at random, purporting to come from a genuine company operating on the Internet. In an attempt to trick customers fraudsters’ request disclosing information at a bogus website operated by them. In their emails fraudsters’ usually claim that it is necessary to ‘update’ or ‘verify’ the password and they urge you to click on a link from the email that takes you to the bogus website. Any information entered on the bogus website is captured by the criminals for their own fraudulent purposes. The scammer gets your username and password once you log in to a banking Web site. A key logger then records your information and takes screen shots of your PC activity. ATM Phishing is possible when particulars of card and PIN are divulged over internet this enables cheats to produce counterfeit cards for fraudulent ATM cash withdrawals.
Experts say that phishing scams can be prevented if you install a firewall or frequently run and update antivirus software and do not divulge PIN, card number and the name of issuing institution.
While Phishing remains a high concern, experts also caution consumers against high-risk Internet use. Experts advise consumers to monitor their accounts regularly. Always be wary of e-mails asking you to click on a link or confirm your details. If in doubt, phone the organisation first. Visit your credit card issuer’s web site for their latest advice on secure online shopping with a password.

8.2-Skimming: -

Those scammers, who target ATM users, use the latest technology to their advantage. Fraudsters make counterfeit ATM cards by using a skimmer, which is a card-swipe device that reads the information on a consumer's ATM card. Scammers insert onto an ATM, ready to swipe information from unsuspecting customers. They take a blank card and encode all the information from an ATM card when they swipe. The skimmer catches the PIN (personal identification number) through a small camera mounted on the ATM. The consumer is unaware that without even the card has been stolen they have been scammed. Therefore watch out for unusual devices on ATM machines as cards can be skimmed and reproduced.

8. 3-The "Lebanese Loop”: -

Scammers insert a portable steel loop into an ATM card slot. The scammer usually approaches the victim while at the machine, and poses as the person next in line. Victims are advised to enter their PINs three times and then hit cancel to get the machine to accept the cards. The scammer is able to memorize the PIN for future use and the machine keeps the card because of the excessive number of attempts to enter the correct PIN. Victims leave in frustration because they could not get any money and they have lost their card. Once the loop is taken out of the ATM the scammer has the card and the PIN number for future transactions. This is a relatively new scam that many experts believe will be short-lived due to fast technology upgrades.

8.4-Pretexting: -

This scam involves getting your personal information under false pretenses.For example, someone contacts you claiming to be from the security department of your bank. They ask you to verify personal information over the phone, such as your birth date, or your mother's maiden name. Sometimes the caller may even know a piece of personal information about you that may help to convince you that they are a legitimate bank representative.
The pretext caller then sell your personal information to people who may use it to get credit in your name. Do not, under any circumstances, give any personal or banking information out over the phone, especially if you do not initiate the phone call.
Be discriminating when providing personal information online. Never give out your personal or account information to anyone you do not trust. Make sure you verify a business's legitimacy by visiting its web site. Ask the caller to give his phone number to enable you to respond. Immediately contact bank and inform.

8.5-Spoofing: -

In a "spoofing attack," the attacker creates a misleading context to trick you into making an inappropriate security-relevant decision.For example, criminals have set up bogus automated teller machines, typically in public areas or shopping malls. The machines would accept ATM cards and ask for PIN codes. Once the machine has the PIN, criminals have enough information to steal from the account.

9-Conclusion: -

ATM frauds not only cause financial losses, but may also hamper customers' confidence in using ATMs, which would run counter to the industry's efforts in encouraging greater use of the electronic channels of delivery. It is therefore in the interest of banks to prevent ATM frauds. The nature and extent of precautionary measures to be adopted will, however, depend upon the requirements of the respective banks. ATM fraud is not the sole problem of banks alone, it is a big threat, which requires a coordinated and cooperative action on the part of the bank, customers and the law enforcement machinery.