Alarmed at the trend of state-run banks' profitability eroding soon after their chairmen retire, the Reserve Bank of India (RBI) has asked banks to ensure the absence of human intervention in the maintenance and submission of regulatory reports.
The move is aimed at minimising the scope of errors and manipulations in management information systems (MIS) or data warehouses of banks, sources familiar with the development said on condition of anonymity. MIS contains various data like provisioning requirement, non-performing assets, top borrowers and exposure to top clients.
“RBI has made it clear to all banks that the process of keeping records and data should be automated as far as possible. The central bank has specifically told banks to ensure there is no human intervention in the maintenance of regulatory reports submitted at periodic intervals,” a senior official with a Mumbai-based bank told Business Standard.
In public sector banks, losses and successions often go hand-in-hand. For instance, the country's largest lender, State Bank of India (SBI), reported a 99 per cent decline in net profit for the quarter ended March after Pratip Chaudhuri took charge as the bank's new chairman. It was the worst quarter for the bank in more than a decade.
In June, RBI Deputy Governor K C Chakrabarty slammed state-run banks, pointing to the trend of profits dipping when a new chairman took charge.
Sources said RBI has told public and private sector banks to strengthen their MIS by making it automated and reducing human interference. “It applies to all banks in public and private sectors. Most private banks have better MIS than public sector banks,” said a senior official of a Mumbai-based bank.
Bankers said regulatory reports are prepared by combining data from various systems and human intervention increases the scope for errors and misrepresentations. “In banking, unlike other industries, there are different systems for keeping data. Systems used for maintaining corporate banking data may differ from those used for storing retail banking information. Even in retail banking, different systems could be used to keep data for different retail products like auto loans, housing loans and credit cards,” said a banker. “To prepare a final report, one needs to extract these data from different systems, transform them and load them into the report. The process is commonly referred to as ETL (extraction, transformation and loading). RBI wants this process to be automated including submission of these reports,” he said.
Sources said RBI was also exploring options to create a central server, where data from different banks would be stored. The move, however, was still in the planning stage, they said.
Last year, the government had asked state-owned banks to adopt a system to identify non-performing assets. Banks were told to migrate to a system where the classification of non-performing assets (NPAs) was carried out by using technology, without human interference. Banks would have to migrate to such a system by the end of September. Some of the banks have already seen an increase in bad loans as a result of the shift to system-driven identification of NPAs.