Customer Education Initiative

Investment in banks - tips issued in public interest....
While considering a bank, more particularly, a Co-op bank or credit society to invest one's hard earned money, factors like neamess to home/convenient timings/better interest rate/good ambience/friendly staff/large customer base/parking space/home banking facility etc are often given more importance over the financial health of the bank. One need not be a hard core finance expert to assess the financial health of the bank. By following the basic scoring model given below, ordinary citizens can decide fairly accurately, which bank to consider for parking their money.

While Co-op banks have come in for criticism lately, investors need not adopt a knee jerk reaction. They can decide after seeking information from their bank & giving marks against each of the below mentioned point.

This detailed self help guide is written in a simple language without using financial jargon or complicated terms, so that the financially less literate customers can form their own opinion. The aim is to facilitate customers to take informed decisions before investing with any financial institution

The investor should read each point carefully & give 1 mark if it meets expectation and 0 mark if it does not meet expectation. If cumulative total of marks is more than 90%, the bank may be considered for investment.

Disclaimer: We would like to add that, even if the total marks obtained is over 90%, still, customer discretion is advised, especially if certain crucial aspects (marked 'Critical' against some points) are not met by the bank. These can be considered deal breakers

We are bank agnostic and do not promote or reject any specific bank. We recommend investors to follow prudent practice to spread their investments over many banks rather than concentrate their large investments with few banks. Ignorance is often no excuse under law, more so, when we make our investment decisions.

The score card is a public service initiative from the undersigned, a senior banker with over 4 decades of experience at leading banks in India & abroad. Now, a consultant assisting banks in India with Business Process Re-engineering (BPR) & Transformation services.

Below points are designed to act as guide to decision making. For clarifications, readers may mail queries to our WhatsApp number at +91-9930311931 . All mails will be replied at the earliest.

Wishing all of you a very happy and careful investing!
JS Iyer Founder, www.omexpresspaymentsservices.com

Points to be considered before deciding to invest. It is your right, to insist your banker to provide written information against each point on bank's letter head, signed by the Manager with the bank seal. The score card is detailed & includes all major points to be considered before investing. Your life savings will be relatively safe, if you take necessary steps to find more about your bank. The below guide can help you.

If a banker is not able to provide information to the below questions, it may be better to avoid such banks. (Scoring pattern-1 mark against each point for positive information & o mark for negative information. For us, o mark against critical point is deal breaker)


  
Is the bank politically exposed? Critical (0 mark if the bank is known to have political links & 1 mark if the bank is not politically exposed)
  
Are the Chairman, Board of Directors, MD & CEO known for their integrity, reputation and transparency or have a questionable image and past? Critical (0 mark for dodgy image, 1 if they have integrity)
  
Whether name of Chairman, Board of Directors, MD & CEO is prominently put up at Branch Notice Board or Branch Manager is willing to provide the information? (0 mark if information is absent, 1 if it is provided)
  
Whether bank has professional Directors with 2 experienced Bankers in its Board as per RBI norms? (0 mark for absence, 1 if Directors are professionals)
  
Whether all crucial decision making at the bank is taken through a collective approach or is vested with a single person in the Board/HO? (1 for collective approach, 0 in case of single person)
  
Does bank have working committees such as Committee of Executives, Credit Committee, Audit Committee, IT Committee, Recovery & Legal Committee etc? (0 for absence, 1 for presence of such committees)
  
Does the bank have documented financial and non-financial delegation of powers for officials working at the Head Office and Branches of the bank? (0 for absence, 1 for presence of delegated powers)
  
Is the bank having Risk Dept headed by Chief Risk Officer to prepare detailed risk note on Credit, Market & Operational risks for all major loan proposals? (0 for absence, 1 for presence)
  
Is the Loans Dept of the bank working independently from its Head Office / Corporate Office / Central Office in accordance with Credit Policy of the bank? (0 for absence, 1 for presence)
  
Are any Directors / Chairman part of the Loans Committee or is the Loan Proposals independently assessed by the Officers of the Loan Committee? (0 if yes for the first part, 1 if yes for second part)
  
Does the bank have KYC & Loan Appraisal policies wherein income & repayment capacity of the borrower is given more weightage over value of security? (0 for absence, 1 for presence of policies)
  
Is the bank registered with rating agencies such as CIBIL, Experian, Equifax, HiMark etc and does the bank upload on their site its loan data each month? (0 for absence, 1 if bank is registered & uploads data)
  
Are large loan proposals referred by Directors/Agents / CA firms etc or Does all high value loan proposals sourced by the bank management themselves. (0 for yes to first part and 1 for yes to second part)
  
Does bank have a panel of highly reputed valuers to assess value of the collaterals and lawyers to conduct encumberance search of the collateral mortgaged? (0 for absence, 1 for presence)
  
Is the bank monitoring overdue loan position on a daily basis and does it have a team of officers at its recovery dept to recover the overdue promptly? (0 for absence, 1 for presence)
  
Did you find the Branch Manager and Officers to be capable of conducting in depth know the borrower' exercise and doing their preliminary due diligence? (0 for absence of capability, 1 for presence)
  
Is the bank conducting regular inspection of stocks and book depts of its borrowers? Does it have a team of Officers to undertake this exercise (0 for absence, 1 for compliance & presence of a team)
  
Does the bank have a policy of conducting independent Management Audit by a CA firm of Key Departments at its HO, at least once in two years? (0 for absence, 1 if Management audit is conducted)
  
Does the bank have Core Banking Solution and are all its branches connected to the network? Is the CBS offered by a reputed and experienced IT company? (0 for absence, 1 for presence of CBS)
  
Does all transactions get routed through the Core Banking Software of the bank or does the bank hold data in excel format outside the Core Banking Platform? (If yes for the first part and 0 for the second part)
  
What was the RBI audit rating of the bank for the past 3 years? (A rating being high and D being low) (1 if the rating is A, 0 for all other ratings)
  
Based on the audit rating and other parameters set by RBI, Is the bank certified by RBI as Financially Sound & Well Managed (FS&WM)? (1 if the bank is FS&WM, 0 if it is not)
  
Is the bank profit making or has been incurring losses during the past 3 years? (1 for profit making, 0 for losses in past 3 years)
  
Does the bank declare dividend year on year to its shareholders? (1 for yes, 0 for no dividend declared year on year)
  
Is the Gross and Net Non Performing Assets of the bank well within the RBI norms of 7% & 5% respectively of its total loan book? (1 for yes, 0 if the NPA is beyond the RBI norms)
  
Has the bank been ever penalised by RBI or any restrictions been imposed on it by RBI? (0 if it has been penalized, 1 if not penalized)
  
Does the provisioning by the bank cover its Non Performing Assets? (0 if provisioning is short and 1 if it is adequate)
  
Does bank have healthy 'Credit to Deposit ratio exceeding 60%? (1 if CD ratio is over 60% & 0 if it is less than 60%)
  
Does the bank have an active Treasury Dept? (0 for absence of active Treasury Dept and 1 if it has)
  
Does the bank's internal and statutory auditors audit the Credit & Treasury Dept periodically? (1 for yes, 0 for no)
  
Is the return on investment earned by Treasury Dept for the past year through its investment/ trading in Treasury Bills & Government Securities commensurate? (1 if Treasury returns are equal or more than deposit rates and 0 if returns are less than the deposit rates)
  
Does the bank maintain Statutory Liquidity Ratio and Cash Reserve Ratio as mandated by the regulator or has there been any default in maintaining the same? (0 for default in CRR/SLR & 1 for maintaining CRR/SLR)
  
Does the bank have a designated Nodal / Principal Officer (NO & PO) to interact with the regulators? (0 if the bank does not have and 1 if it has a NO & PO)
  
Is the bank having an escalation matrix to respond to customer complaints within pre-accepted turn-around time for the same? Is it displayed at branch/website? (1 if bank has the same and 0 if it does not have)
  
Is the bank paying premium on its deposits once every six months to Deposit Insurance Credit Guarantee Corporation. Is copy of premium receipt on display? (1 if DICGC premium is paid and 0 if it is not paid)
  
Is the bank having CASA base of 30% and above or is it largely dependent on high cost Term Deposits? (0 if CASA is less than 30% of total deposits, 1 if CASA is 30% or more)
  
What about Net Interest Margin (NIM is difference between interest on deposits & interest on loans after factoring operational costs) earned by the bank? (0 if NIM is less than 3% & 1 if NIM is more than 3%)
  
Does the bank have a Transfer Price Rate to pay branches generating more deposits & less loans? (0 if the bank does not have TPR and 1 if it has TPR)
  
Is the bank offering unusually high interest rates on its deposits in comparison with similar banks? (0 if the rates are high in comparison and 1 if the rates are equal or less than competing banks)
  
Does the bank charge very high interest rates on its loans in comparison with the competing banks? (0 if interest rates on loans are very high and thereby attracting low quality assets, 1 if rates are not high)
  
Does the bank's loan book have more of small value loans or does it have more of high value loans? (1 if the majority of loan customers are individuals, small & medium establishments and 0 if they are largely high value corporate loans)
  
Does the bank have well laid down single party and group exposure norms under its Credit Policy? Is the majority of loan disbursed to a single party? (0 if the bank does not have such norms and 1 if it has such norms and follows the same)
  
Is the bank giving high value loans to Corporates or business run / referred by Directors / Politically exposed persons? (1 if bank does not have such loans in its books and 0 if it has large percentage of such loans in its books)
  
Is the bank having concentration of giving large loans to a particular sector or industry or Home Loans/Commercial Real Estate exposing to sectoral risks? (1 if it does not have such exposure and 0 if it has)
  
Does the bank have the policy of recruiting officers from the market or does it employ friends and relatives referred by the Board of Directors? (1 if it has the policy of recruiting from the market and 0 if it has been recruiting internally)
  
Are the Staff, Officers & Managers regularly sent for training to various institutions such as College of Agricultural Banking/Vaikunth Mehta college of Banking? (0 if training needs are not provided & 1 if they are)
  
When was the bank established and what has been its branch and business growth since its inception? (0 if bank has remained stagnant through the years, 1 if it has steadily grown over the years)
  
Does bank have offsite Data Center, Data Recovery & Business Continuity Plan (DC DR&BCP)to meet exigencies? (1 if it has offsite DC, DR and BCP, 0 if it does not)
  
Does the bank serve just one community or does it have a more cosmopolitan and broad based clientele? (0 if it only serves one community, 1 if it serves all)
  
How has been the industrial relationship of the bank, with its staff and union? (0 if there has been a strike during past 3 years and 1 if the industrial relations have been cordial)
  
Does the bank have a front & back office culture and a wall between the two when it is comes to sourcing loan proposals and scrutinizing/assessing the same? (0 if it does not have & 1 if it has such arrangement)
  
Is the bank having a well laid down organisation structure and is process driven (and not person driven) in its day to day functions? (0 for absence and 1 for presence of such a practice)
  
Does the Branch Manager have powers to debit Profit & Loss Account to refund charges and income? (0 if Branch Manager has such powers and 1 if not)
  
Does the bank practice 6 eye principle in all its transactions? Does it require Maker/Checker & Authorizer to put through all large value transactions? (1 if the bank has dual control and 0 if it does not)
  
Is the bank cost conscious in its day to day activities or is known to spend heavily for various promotions/advertisements/campaigns? (a for yes to first part & o if yes to the second part)
  
When Chairman & Board of Directors refer high value loan proposals, are they recusing themselves from the appraisal and sanction process? (0 if they participate in process, 1 if they do not)
  
Does the bank have the practice of maintaining minutes and resolution of all its Committee and Board Meeting proceedings? (1 for maintaining the records & 0 for not maintaining)
  
Does the bank file large cash and suspicious transactions vide Cash Transaction Report and Suspicious Transaction Report (CTR / STR) with the Financial Intelligence Unit (FIU)? (1 for filing CTR/STR with FIU and 0 for not filing)
  
Are Chairman & Board of Directors engaged in businesses which are likely to result in clash of interest with the working of the bank? (0 for clash of interest & 1 for no clash of interest)
  
Are the Board Members and Chairman known to have related party transactions with the bank and if so, are such details reported periodically to the regulator? (0 if such details are not reported and 1 if they are reported periodically to the regulators)
  
Does the bank follow in letter and spirit the Do's and Dont's as laid down by RBI? (0 if it does not, 1 if it follows in letter & spirit)
  
Has the bank been using the provisions of National Company Law Tribunal (NCLT) and SARFAESI Act to recover in time, its Non-Performing Assets and Bad Loans? (1 if bank approaches NCLT under SARFAESI & 0 if it has not)
  
Does bank have email culture of giving & receiving all sensitive financial instructions through emails or are these done over phone by Management & Board? (1 if emails are used as documented mode of communication & 0 if oral instructions are resorted to)
  
Does important data such as Share Capital, Reserves, Deposits, Loans, NPAs, Profit, Dividend, Number of Employees etc displayed at the Branch? (1 if they are displayed publicly & 0 if they are not)
  
Is the RBI licence copy and Abridged version of the Financials displayed at the Branch notice board or available for scrutiny with the Branch Manager? (1 if they are displayed & 0 if they are not provided)


(The above questionnaire is developed to help common public & individuals to arrive at investment decisions. No part of the same is to be used, copied, transmitted or reproduced without the written permission of J S lyer, Founder www.omexpresspaymentsservices.com)