emerging trends in banking sector

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Emerging Trends in Banking Sector - Need for Ethical Values 1. MEANING OF ETHICAL BANKING “Earning of profit cannot be the objective of banking activity any more than eating is the objective of Living”. In today’s competitive environment, a truly successful modern banking can be built up only if the objective of service to customers is constantly kept in view. Then profit will come automatically. Therefore ethical banking is much more important to modern banking. Ethical Banking refers to the moral principles, which are considered right by the modern society and so should govern and guide the modern banking activities. They are the moral principles and rules of conduct, which should guide the activities of modern banking. In short, Ethical Banking is the study of good and evil, right and wrong and just and unjust activities of banking. Ethical banking culture is a blend of ideas, customs, heritage, culture, traditional practices, bankers’ values and shared meanings that help define normal

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Page 1: Emerging Trends in Banking Sector

Emerging Trends in Banking Sector

- Need for Ethical Values

1. MEANING OF ETHICAL BANKING

“Earning of profit cannot be the objective of banking activity any more than

eating is the objective of Living”. In today’s competitive environment, a truly successful

modern banking can be built up only if the objective of service to customers is constantly

kept in view. Then profit will come automatically. Therefore ethical banking is much

more important to modern banking. Ethical Banking refers to the moral principles, which

are considered right by the modern society and so should govern and guide the modern

banking activities. They are the moral principles and rules of conduct, which should

guide the activities of modern banking. In short, Ethical Banking is the study of good

and evil, right and wrong and just and unjust activities of banking. Ethical banking

culture is a blend of ideas, customs, heritage, culture, traditional practices, bankers’

values and shared meanings that help define normal behaviour of everyone who works in

a bank. Apart from this, the bankers are dealers with customer money so they should

have a say in how it is used. It is a very good idea to have a set of ethical principles

guiding banking activities.

Ethical Banking goes beyond literal provision of law and is justified by long-

term considerations, contributions to banking growth and social justice. It doesn’t denote

merely elementary do’s and don’ts, but goes much deeper. In India there is lack of

rapport between banks and customers. Each looks upon the other with suspicion. In

today’s banking scenario, there is an increasing competition among banks which are

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emanating, not only from peers, but from new entrants like financial institutions, and

mutual funds, it is necessary for greater co-operation between banker and the customer.

Mutually sustained relationship is also necessary.

Recently RBI has introduced “Know Your Customer- KYC” norms by which

banks come to know more about the customer. It also ensures customer identification

and verification of his/ her residential address and also monitors transactions of

suspicious nature.

2. MEANING OF ETHICS:

The word Ethics is derived from the Greek word “ethos” which refers to

character. In literature, ethics means a set of principle or morals. The adoption of

morality results in forming an ethic in the performance of a work.

According to the dictionary the term ethics means “the principles of conduct

governing an individual or group”.

Ethics deals with morality, but it is not quite the same as morality. It is a kind

of investigation – including both the activity of investigating and result of that

investigation. Morality is the subject matter that ethics investigate.

A customer comes to the Bank; the Manager just wishes him – Good morning

Sir”. This is a simple example of Ethical Banking.

3. ETHICAL BANKING IN INDIA

Every business concern has its own codes to conduct business effectively. In India

we have professional associations for doctors, lawyers and engineers etc. These

professional associations try to develop codes of conduct for the members engaged in the

profession. These associations offer positive suggestions, tangible steps to prevent

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business malpractices and unethical practices. Similarly Reserve Bank of India is the

controlling and monitoring authority for the Banking Industry in India. It sets out

guidelines and practices to be followed by the Banks. Indian Bankers Association also

sets guidance and codes to be followed by member banks and also in customer’s service.

Banking Ombudsman is a new concept, which has been introduced to look after customer

grievances.

4. NEED FOR ETHICAL BANKING

The use of modern machines has an impact on the functioning of banks and also

life style of banking activity. The credit – debit machine has improved the functioning of

banking organization. The FAX and E-mailing facilities, ATMS, computers have

evolutionised the functioning of banks. Service to customer has further improved in all

areas. Techonology develops faster than the regulatory agencies. Hence it necessary to

observe ethical banking for the following reasons:

4.1.Survival of the banking unit: Bankers should consider the interest of the customer.

Unethical practices of the bankers will lead to the closure of banking unit and create

problem to bankers but also to employees and the society in general. Since the banking

industry is a service industry the bankers are expected to protect their units in all respects

through leadership qualities, integrity, knowledge, skill etc.,

4.2. Growth of banking unit: The next reason for observing ethical banking is to ensure

the growth of banking activity. Whenever, a banker observes ethics strictly, definitely

there can be growth, improvement, development of banking sector.

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4.3. Earning goodwill: The prime objective of banking activity is to render service to the

customer and to earn profit by adopting ethical banking. Automatically this will lead to

earn a good name in the minds of the general public.

4.4. Improving confidence: Ethical banking is necessary to improve the confidence of

the customers, employees and the like.

4.5. Maintaining Inter-relationship: The Inter-relationship of banking activity is to be

maintained by adopting ethical banking. The proverb “No tree can be considered as a

forest” attests this fact. It is expected that each banking unit should have a smooth

relationship with others.

The banking companies are making use of information technologies for

improving the quality of service. The advancement of Electronic funds transfer system,

credit & debit cards, preauthorized transfer, Automated clearing houses, billing machines,

ATMs, credit deposit machines, super computers and micro computers, fax machines,

any where banking, are to mention a few which have revolutionised the functional

properties of the service oriented organization. We can’t deny the fact that the use of

technologies has made available to the users quality services. The speed, accuracy,

perfection is the new term included in the expectation of the customer.

A nagging problem within canvassing deposits by banks is the question of

ethics in deposit mobilization. The deposit mobilizing officials offer free lunches, tea,

snacks, gift item like key bunch, dairy, calendars etc., These attempts at offering gifts to

depositors raise the question of how much is too much. At what point did gift to

depositors become unethical or illegal. Reserve Bank of India has laid down strict codes

of conduct for bankers.

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Generally gifts like calendars, key bunches are given to customer to create a

friendly relationship between them. When the bank’s calendar hangs on the walls of the

business concern, it helps to increase the business by introduction of new clients. Today,

most of the business concerns display a placard “OUR BANKERS ARE ABC”. If that

concern is doing well it automatically attracts more clients to that bank.

But when gifts are given to individuals to get their deposits or transfer their

money from another bank by false claims, becomes a bribe. Recently many private sector

banks have come out with appointment of agents to mobilize their deposits and market

their credit products. These agents are paid commission. This helps to prevent bribes.

In discussing banking ethics, it is important to make a distinction between

personal ethics and banking ethics, although there isn’t always a clear boundary between

the two deals with how we treat others in our day to day lives. Many of these principles

are applicable to ethical situation that occur in banking. However banking ethics often

involves choice of banking at organizational level rather than a personal level. Many of

the problems will seem different because they involve relationships between two banking

organizations, between group of individuals. Frequently, these types of relationship pose

problems that are encountered in personal ethics.

Personal ethics is necessary to solve problems arising in day to day banking &

working. A manager who is personally sound can effectively solve the official problems.

Ethical banking and profit go together. Value driven banking sectors are sure to

be successful in the long run, though in the short run, they may lose money.

5. PRINCIPLES OF BANKING ETHICS

Following are some of the basic principles of Banking Ethics

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5.1. Service motive should be in first place rather than profit motive. Even

though the very purpose of any business is to earn profit. There should be no

discrimination against any particular group of people, say the rich, the poor, the high, the

low, the caste, the religion etc., All customers should be treated with the same priority.

5.2. The customers should be fully satisfied. This will ensure that customer will

do all his Banking transactions at the bank.

5.3Human feeling is properly considered while rendering service. Politeness

and prompt answering by banker will ensure that the customers will fell at home in his

Bank.

5.4. The Bankers must make sure that they charge reasonable commission,

interest etc., and take every possible step to ensure that the charges and commission rates

are brought to the customer notice. The charges must not be higher than fixed rate.

5.5. Bank should not publish misleading advertisement, only service rendered

by them and credit products must be advertised also actual interest rates and charges must

be published.

5.6. Banker must honour the fundamental rights of the customers like, right to

information and right to be heard.

5.7. The Bank must realize their social responsibility and nature’s infrastructure.

Helping under-privileged and poorer society to secure finance can do this and guidance

through Government sponsored programme and banks own credit scheme.

5.8. Proper and effective communication system at all levels will lead to proper

understanding, co-operation, and co-ordination and team sprit.

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Ethical Banking must maintain highest standard of behaviour for the benefit of

Bankers, employee customers and society. Employees should have job security, paid fair

wages, provided better working conditions, motivated to participate in management.

Efficient employees are to be properly motivated and recognized, allowed free speech in

work place etc. Proper personnel policy in regard to promotion, transfer should be

followed. The best way of promoting high standard of banking activities is through self-

regulation. Customer must be given best possible service and treated with respect and

fairness.

6. ETHICAL INFLUENCES ON BANKING

Ethical considerations are as important in Banking as in other occupation. In

the filed of morality, Personal life is not separate from business life. Ethical

consideration is significant while the Bank manager is performing the following function.

BANKING FUNCTIONS ETHICAL

Marketing

Advertising

Location

Functions & service

Finance

personnel

Information

Treatment to customer complaints

Truth of claims, not deceptive

Impact on community and environment

Concern for social Value.

Profit to re-compensate investors safe guarding

assets.

Meeting promises to pay Fair treatment in hiring,

promotion, dismissal and pensions

Credibility, Validity

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Factors Affecting Banking Ethics

The Banking organisation wants to conduct its business without affecting the

interest of society and by assuming responsibility, exercising authority and maintaining

dignity. But there are some factors affecting the observation or adoption of banking

ethics.

6.1. Abnormal profit motive: The performance of any business is judged by

profit it makes. Banks are also no exception to this. Once proper Banking Ethics is

followed the banks will get a strong customer base, which in turn will result in good

business leading to profit.

6.2. Political uncertainty: The policy of government affects the Banking Ethics

to some extent. If government changes, automatically policies adopted also change. It

becomes difficult for the Banking Industry to change its working for short periods. Only

stable Government can ensure that banking ethics more effectively.

6.3. Unjust legislation: An act is passed after thorough discussion and analysis

but the person who participates in the discussion may know the practical difficulties in

the implementation of the act. So a legally right practice may not be ethically right. The

persons formulating the act must have firsthand experience and practical knowledge in

the concerned field.

6.4. Unhealthy competition: With more private sector banks and financial

institution entering the Banking Business there is competition in every sectors of

Banking. Private Banks provide better service to customers. Unhealthy competition

arises between the banks itself, which also affects banking ethics.

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6.5. Corruption: Now a day, corruption is prevalent in all sectors of the society.

Banking industry is also no exception to this. Every day frauds are being reported by

almost all the banks. Non-performing Assets (NPA) are also on the rise, borrowers are

not properly repaying loans. This is mainly due to non-adherence of Banking Ethics both

by Bankers and Borrowers.

6.6Lack of ethical attitude: Each person differs from others. His definition of

ethics also differs according to his thinking. His reasoning of a particular situation also

differs from other. As there are no fast rules governing Banking Ethics, a person may not

follow them, he may lack ethical attitude.

6.7. Lack of Education: Here education refers to the knowledge of ethical

values. Bankers want to follow Banking Ethics strictly, but they do not know what the

Banking Ethics is relating to their business.

6.8. Non-Co-operation of workers: Employees do not care about the business

ethics. They just want to do their work as quickly as possible for remuneration. The

impact of non-adoption of Banking Ethics affects the business and not the employees.

7. ETHICAL COMMITTEES AND FUNCTIONS

Many Banks have ethical committees to advice on ethical issues. Such a committee can

be high level or comprising the Board of Directors, chaired by the Chairman of the Bank.

The committee fields question from employee, helps the Bank establish policy

in new or uncertain areas, advises the Board of Directors on ethical issues and over sees

the enforcement of the code of ethics.

Functions of Ethical committee are:

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a. Holding regular meeting to discuss ethical issues

b. Dealing with “Gray areas”

c. Communicating with the web Ball member of the organization.

d. Checking for possible violation of the code

e. Enforcing the code

f. Recording compliance and furnishing violations.

g. Reviewing and updating the code

h. Reporting activities of the committee to the Board of Directors.

8. RESERVE BANK OF INDIA DIRECTIVE TO BANKS

The RBI recently advised Banks to constitute adhoc committee to undertake

procedures and performance audit on public services rendered by them.The Bank level

committees will be setup for periods of one year and have to complete the work within

six months. The RBI has also asked the committees to submit reports to it. The Central

Bank has for quite sometime been reiterating the need for betterment of customer

services. Now going one step forward the RBI has also outlined the tasks to be assigned

to the adhoc committee with a view to support broad based improvement in customers

service in relation to various banking services.

The committee will look into simplification of procedures and practices with a

view to safeguarding the interests of common person be they current or saving account

holder, depositors or borrowers, from any unfair procedural practices by banks. Matters

pertaining to cases like delay in credit of Interest handling of deceased accounts, release

of mortgage documents, reversal of erroneous entries in credit cards, updation of

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passbooks, transparency of charges levied on customers, unilateral debits in the customer

accounts, foreign exchange transactions will be in the preview the committee.

The RBI has also told banks to review the services to customer in respects of

a. Meeting their demands for fresh, good notes and coins of all

denominations

b. Exchanging soiled notes

c. Adjudicating mutilated notes and

d. Accepting coins and notes either for transactions or in exchange.

The committee will also be empowered to review the regulation and procedures

prescribed by RBI that impinge on customer service of banks. It is also empowered to

make suggestions for rationalization of the regulations. The goal is to reduce the cost and

improve the efficiency in transaction.

9. THE IBA CODE FOR BANKING PRACTICE

Indian Banks Association (IBA) code for Banking practice (hereinafter referred

to as the IBA code/ the code) is issued by the Indian Bank’s Association (hereinafter

referred to as the concurrence of the Reserve Bank of India).

This is a non-statutory code issued on a voluntary basis. It is to be observed by

the Member Banks in Dealing with their personal customer (hereinafter referred to as

customer). It covers specifically banking services such as current accounts, saving and

other deposit accounts, advances (loans and overdraft). However, principle of the code

will apply to overall relationship between the Member Banks themselves and their

customers.

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The recommendations set out in the code are supplementary to and do not

supplant any relevant legislation codes, guidelines or rules applicable to member Banks

of India Act 1934, the Negotiable instrument Act 1881, the banking companies

acquisitions and transfer of undertaking Act 1970 and 1980 or any other law in force in

India governing the Banking Law and Practice.

The Association expects its respective Member Banks to comply with the code

in letter and sprit and observance / compliance thereof shall be monitored by a committee

constituted at the association.

Objectives:

The code is intended

To promote good Banking practices by setting out the minimum standards which

Member Banks will follow in their dealings with customers,

To foster customers confidence in the Banking system;

To inculcate self-discipline amongst Members Banks with a view to promoting

healthy competition and ethical practices in respect of Banking services.

10. REGULATION OF BANKING ETHICS

Business ethics are observed by bank because of the consequence that would

result due to their non-compliance. The following are the regulations presented briefly.

10.1. Legislative Measures: Enforcing the legislative measures is one of the ways

of making bankers follow Ethical Banking. The purpose of enforcing the act is to protect

the public interest. The company’s Act, Banking Regulation Act 1949, RBI Act 1934,

Bankers Books Evidence Act 1891, Consumer Protection Act 1986, the Recovery of

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debts due to Banks Acts 1993, Negotiable Instrument Act 1881, Limitation Act 1963,

etc., are some measures.

10.2. Goodwill: Banks have to work hard to earn goodwill by adopting ethics.

Thereafter, the same practice is followed to maintain the earned goodwill. By providing

prompt service, good customer relationship, favourable working environment, the Banks

can earn goodwill, which will be an asset for its business growth.

10.3. Social Responsibility: Banks depend on society for its Banking activities;

hence it has to give something in turn to the same society. By following social ethics like

providing advice, finance to the economically poor and socially backward sections of the

society, women entrepreneur’s banks can prove their social responsibility.

10.4. Trade Union: There are a number of trade unions like AIBEA, BEFI, BOA

etc. which act as watchdog to ensure that banking ethics are followed, employees are

properly looked after. They also act as bridges between the management and the

workers.

10.5. Governing bodies: The RBI, IBA etc formulate the General practices and

laws, which govern the Banking activities. They also maintain better relation between

banks. They also provide protection, guidance to bankers.

10.6. Consumer Movement: Today, the consumer movement has developed so

much to protect consumer interests. Banking Ethics deals with morality in the banking

environment. The customers are protected by the consumer protection Act, 1986.

11. CODE OF BANKING ETHICS

Banks play unifying and intermediary roles between fund – supplying and fund

demanding sides of the society, executing savings and investment functions. Due to their

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key role in the economy, while working under the principles of profitability and

productivity, banks are obliged to obey ethical principles of banking profession and

organizational ethics.

With the objectives of improving the quality of banking services, making best use

of the available resources and preventing unfair competition between banks, the banks

are required to regulate their relationship between other banks, with other institutions and

with their customers and employees in compliance with certain ethical principles.

In-day-to-day functioning the following codes of conduct can be listed down for

an effective ethical behaviour.

1. Be professional in the behaviour by developing “Professional dignity” and to

protect the stability and confidence in the Banking sector.

2. Be diligent, loyal to the organization by ensuring strict practice of system, and

procedures, rules, regulations and laws of the organization by considering the

public benefits and interests and to protecting environment.

3. Avoid conflict of interest between your professional and outside activities.

4. Comply with the system and procedures scrupulously.

It is said, “Prevention is better than cure”. “Ethics lies in external alertness

and awareness of both internal and external environment. As such it is

very very important that the following Banking Ethics be constantly kept

in mind.

Each one of us, a public servant is expected to act honestly and faithfully

at all times.

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Always demonstrate a sense of fair play and impartiality in disposing of

cases.

Show courtesy & consideration in public dealings.

Maintain secrecy regarding bank’s affairs.

Observe scrupulously the rules and regulations concerning one’s personal

conduct.

Be discriminate in attending to parties hosted by the Bank’s constituents,

clients etc.

Avoid seeking & receiving cash donations.

Attend to public grievances promptly.

Lay down a time schedule for each stage of the job concerning the

public.

Ensure job rotation of those who are on sensitive desks.

Keep on assessing the strength of the “internal control”.

Publicize the rules and regulations as widely as possible.

Keep a quiet watch over the style of living of the employees.

Maintain proper surveillance of employees of doubtful integrity.

Do careful scrutiny of control returns.

Regular transfer of officers.

Close scrutiny of staff accounts.

Visits by the controllers to detect danger signals.

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Where the control & supervision are effective; above said ethical practices will

have its own course of action in a good manner in enhancing the level of managerial

efficiency and effectiveness.

When these procedures are not observed, naturally frauds will take place. As

such it is very very important to follow the above ethics.

12. BENEFITS OF ETHICAL CODES

Managers are sometimes faced with situations, which are ethically ambiguous

without any clear-cut ethical guidelines. These ambiguities can be avoided if there is a

formal and specific code of ethics. Such a code specifies following groups.

12.1. Customers: When a Banker follows a code of conduct, its customers are

protected against undesirable transactions, like commission, discrimination, misleading

advertisement etc., they can deal with confidence and their anxiety is eliminated.

12.2. Employees: Employees know what type of behaviour is often expected.

They can easily distinguish between ethical and unethical acts and thereby avoid

unethical practices.

12.3. Banker: The Banker gains from a code, because it has to exercise control

over the behaviour of its employees. The code also serves as a basis for maintaining

customer relation. Code of conduct leads to a healthy competition and fair trade practices

in the Banking sector. Therefore the Banks can gain in a socially responsible manner.

16. ETHICS AND LAW

Law and ethics aim at one thing defining proper and improper behaviour. But the

two are not quite the same. Laws are rules of conduct, approved by a legislature, that

guides the bankers performance. Obeying law is presumed to be ethical behaviour. Laws

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are a society’s attempt to formalize that is, to reduce the rules- ideas about what is right

and what is wrong in various walks of life. However it is rarely possible for written rules

to capture all the subtle shadings that people give to ethics. Ethical concepts are more

complex than written rules. Ethics deals with human dilemmas that frequently go beyond

the formal language of law and the meanings given to legal rules.

The Government, Laws and Lawyers cannot do everything to protect customers.

Technology develops faster at a greater speed,. The Top officials in the Modern Banking

Sector often know the dangers in a particulars system or procedure better than the

regulatory agencies. Further Government and Banking authority cannot always regulate

all activities, which are harmful to the banker and customer. Where law fails, ethical

banking can succeed. Law cannot cover all ethical expectations of society.

17.ETHICS TRAINING PROGRAMMES

Nearly all-banking sectors, which take ethics seriously, provide training in ethics

for their managers and employees. Such training programmes acquaint banking sectors

personnel with the official banking policy on ethical issues, and they show how these

policies can be translated into the specifies of every day decision making. Often,

simulated cases based on actual events in the banking sector are used to the illustrate how

to apply ethical principles to on- the- job problems.

Generally speaking, ethics training is most effective, when it is conducted by

banking sectors and is steered away from abstract philosophical discussions to focus on

specific issue from the work environment of those attending.

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18. ETHICS HOT LINES

When bank employees are troubled about some ethical issue but may be reluctant

to raise it with their immediate superior, they can place a call on the Banking ethical hot

time. A member of the ethics committee receives the confidential call and then quickly

investigates the situation. Elaborate steps are taken to protect the identity of the caller, so

as to encourage more employees to report any deviant behaviour. This technique is

advantageous in as much as ethics hotlines encourage internal whistle – blowing, which

is better for the banks than to have disgruntled employees take their ethical complaints to

the media.

19. CONCLUSION

The following million dollar questions will make the management of the

Banking sectors to think seriously to introduce a thorough change in their thinking,

approach and attitude. A sincere effort to find the answers for the following questions

will help in several ways in introducing Ethical Banking efficiently and effectively.

1) Whether we are having clear organizational values?

2) Do we have Ethics strategy Goals and objectives and values?

3) Whether we consider Ethics policies and procedures ?

4) Are there measures of Ethical effectiveness?

5) Do we have rewards for ethical behaviour?

6) Do we have Guidelines for Ethical Decision-making?

7) Are we assessing the Ethical climate continuously?

8) Do we encourage building support for Ethical practices?

9) Are we involving Ethical leadership practices?

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10) Are we evaluating the impact of Ethical practices?

11) Do we have Ethics Education and Training?

12 ) Do we consider and respect employee’s personal values?

There can be many spectacular or extraordinary illustrations of Ethical Banking

only when there is a conducive and congenial climate of identifying himself with the

bank. Indicating a sense of belonging, which form the bedrock for Ethical Banking.

Trust begets trust, and this is the first step in building Ethical Banking and for a better

bon homier between Banker and his customer.THE BANKER NEED NOT DO DIFFERENT

THINGS, THEY NEED TO DO, THINGS DIFFERENTLY”

References

BOOKS

1. Dr. C.B Gupta, Management Theory and Practice, Published By. Sultan Chand &

Sons, New Delhi. P. 735.

2. RN. Gupta, Principles of Management Sultan Chand & Sons, New Delhi. Edition-

2005.

3. James. AT Stoner, Redward Ireeman, Daniel. R. Gilbert, Management – Prentice

Hall of India Private LTD., New Delhi. Edition-2003

4. Dipankar Gupta, Ethics Incorporated, HarperCollins Publishers India, New

Delhi. Edition-2005

5. K.A.Swathappa, Essentials of Business environment Millennium publishers,

Seventh Edition- p 566.

6. Amartya Sen, Resources Values and Development, Oxford University Press,

Bombay, Edition -1984.

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7. Jangannath Mohanty, Teaching of Ethics, (New Trends and

Innovations),Deep&Deep Publications (p) Ltd, NewDelhi,Edition-2005

8. C.R. Kothari. Research Methodology Methods and Techniques. New Age

International (P) Ltd., publishing New Delhi. Edition-2004

9. S.L Kaushal, Business Ethics (Concepts, crisis and Solutions), Deep and Deep

publications (P) Ltd., New Delhi. Edition-2004.

JOURNALS

1.Indian journal of Marketing

2. Bank quest - Journal of Indian Institute of Banking & Finance Mumbai –05 July

sep 2004 p.59.

3.Bank quest -Journal of Indian Institute of Banking & Finance Mumbai – 05 Jan –

Mar 2005 p-61.

4. State Bank of India monthly review .

5. Indian Bankers Associations Bulletin.

6. The journal of Banking Studies, Bankers College New Delhi, April 2004 p.22.

World Wide Web

1.www.google.com.

2. www.ethics.org.

3. www.bsp.com.

4. www.bigissuelists.co.uk.

5. www.cir.rbi.org.in.

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REFORMATION OF ETHICAL BANKING

A SUGGESTIVE FRAME WORK

MEANING OF THE ETHICS

ethics means “the principles of conduct governing an individual or

group”.Ethics may be classified into many types according to the situation. For

example (a) personal ethics – referring to the rules by which an individual lives

his or her personal life (b) accounting ethics refers to the code that guides the

professional conduct of accountants. (C) Ethical Banking – refers to the practices

and relationship between bankers & customers.

Ethics is the discipline that examines one’s moral stands or the moral

standards of a society. It asks how these standards are reasonable or

unreasonable, that is, whether they are supported by good reason or poor ones.

Therefore a person starts to do ethics when he or she takes the normal stand

absorbed from family, society and friends, and asks.

o What do these standards imply for the situations in which I

find myself?

o Do these standards really make sense?

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o What are the reasons for or against these standards?

o Why should I continue to believe in them?

o what can be said against them?

o Are they really reasonable for me to hold?

o Are their implications in the or that particular situation

reasonable?

“Banking is concerned with change, adapting to change and creating

change”

G.B.Glies.

INTRODUCTION

Having discussed Ethical Banking in all its theoretical aspect and also

the difficulties faced in implementing it, it is but logical that an assessment should

be made of its actual working from different angles. Hence, an attempt has been

made in this chapter for reforming the implementation. The rationale behind this

approach is to find out whether the implementation of ethical banking is really

beneficial. The suggestions proposed here are mainly based on the measures

suggested by the respondents and officials during their interviews. The personal

observations at the time of the visits to the different commercial banks have also

been kept in view, while making the suggestions.

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The findings of the study will no doubt, help in avoiding some of the

major short – comings. These should serve as guidelines for the effective and

efficient introduction of ethical banking and they are by no means final solutions.

4.2 UNETHICAL WORK HABITS

From the close personal observation of Banking premises the researcher

was in position to arrive at the following deadly sins of unethical work habits.

These unethical work habits actually eat away the valuable working hours and

blacklist the staff as inefficient and unprofessional. Due care and caution should

be taken in these areas.

Office e-mail should be used for official purpose only. Forwarding of

jokes, personal mails chatting on line with friends during working hours, Graphics

and animation to co- workers can jam net works. It is not only unprofessional,

but also costs the banking organization in terms of wasted computer resources

and needless to say productivity.

The office telephone is primarily a tool for promoting banking activities

and if the line is constantly engaged. While you discuss the latest news and

gossip with all and sundry, it may spike the guns of customer trying to reach you.

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Remember, more calls coming in can mean more banking transactions. Keep all

calls quick and to the point.

Spending hours away from the desk and chatting with a colleague in the

next cabin, while away valuable office hours are not ethical work habit.

Personal errands during office hours reflect an utter disregard for office

decorum and will reflect poorly on your professional image.

It is observed by the researcher that some of the key employees of a

bank engage in unethical acts such as lying on expense incurred, accepting

kickbacks, falsifying reports and forging signatures.

The following factors can be mentioned as the root cause of unethical

behaviour.

1. Pressure to balance work and family.

2. Poor communication.

3. Poor leadership

4. Long working hours, heavy work load

5. Pressure of meeting business targets

6. Little or no recognition of personal achievement

7. Company politics.

8. Personal financial worries.

Empty slogans displayed in walls and endless preaching of Ethical

Banking should be backed by concrete and substantial action. It should be

backed by strong action packed and result-oriented programme.

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Senior management should set an example to others by adopting the

highest standards of the code of conduct, honesty, transparency and

trustworthiness.

It is observed that there is no establishment of independent “ HOT LINE”

OR “HELPLINES”, to seek guidance and advice, when there is an ethical

dilemma or when they encounter unethical conduct in the workplace.

It is necessary to create a separate Ethical auditing and consulting

functions to resolve Ethical conflicts.

Proper and effective communication of ethical Banking goals, rules,

expectation, and priorities is very necessary.

Establishment of an Ethics Committee, Ombudsman office, Judicial

Boards should be made and periodical review is necessary to monitor the

activities and to ensure that offenses are not repeated.

The code of ethics, values and code of conduct should be signed by the

members and displayed in the Bank notice board and in web sites for public

viewing.

To engage in ethical banking the banker and the customer need to

understand ethical language, including the terms, values, rights and duties, moral

rules and relationship.

It is observed that executives themselves are unhappy about the current

Ethical Banking climate.

FRAUDS IN BANKS

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The following Table 4.1 shows the number of fraud in public sector

banks. These frauds reinforce the assertion that our bankers are generally

unethical. Corruption is not peculiar to our country. It is universal as the Table

reveals. The primary duty the Bankers must be to introduce Ethical

Banking and eradicate frauds.

TABLE -1

FRAUDS IN PUBLIC SECTOR BANKS

S.NO NAME OF COUNTRYNO.OF

FRAUDS1 NEW ZEALAND 9.552 SINGAPORE 9.253 UNITED KINGDOM 8.574 GERMANY 8.145 UNITED STATES 7.796 HONG KONG 7.127 JAPAN 6.728 SOUTH KOREA 4.299 MEXICO 3.1810 INDIA 2.7811 CHINA 2.1612 INDONESIA 1.94

Source: News Week March, 1995

It is well known from the above table that most of our businessmen are

lured by the fast back culture i.e., to earn as much money and as fast as

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possible. Ends justify the means for our businessmen. It is not proper and

acceptable.

From the Table -2 it is evident that number of frauds in public sectors

Banks has seen a steady increase in the last few years. At least 2,653 fraud

cases were reported in 2004-2005. While this number was 2197 in 2003-2004

and 1,774 in 2002-2003.

However the amount involved in fraud has come down. It was Rs

600.16crore in 2004-2005 while the previous year the figure was Rs.654crore. It

may however be noted that in 2002-2003 the amount involved in frauds was

estimated at Rs.399.55crore.

State Bank of India (SBI) registered the highest number of frauds with a

total of 383 cases in 2004 – 2005 while the amount involved was Rs.90.65crore.

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TABLE -2

BANK WISE FRAUDS DETECTED AND AMOUNT IN PUBLIC

SECTOR BANKS DURING THE YEAR 2003-04 & 2004-2005

S.No PUBLIC SECTOR BANKS

2003-2004 2004-2005

No of Frauds Amount involved

in Rs.(crore)

No of Frauds

Amount involved

in Rs (crore)1 STATE BANK OF INDIA 408 112 383 90.652 INDIAN BANK 68 44 140 53.663 CENTRAL BANK OF INDIA 99 29 161 50.234 ORIENTAL BANK OF COMMERCE 23 10 22 44.525 CANARA BANK 167 16 183 44.366 PUNJAB NATIONAL BANK 314 150 210 34.737 BANK OF BARODA 174 53 229 34.278 CORPORATION BANK 93 4 283 34.039 VIJAYA BANK 57 13 64 27.5010 UNITED BANK OF INDIA 37 3 15 27.1211 SYNDICATE BANK 113 10 147 24.1412 BANK OF INDIA 119 22 122 22.9513 UNION BANK OF INDIA 60 28 76 20.3614 INDAIN OVERSEAS BANK 58 6 88 13.5115 STATE BANK OF HYDERABAD 56 14 62 12.5716 UCO BANK 94 21 79 12.5617 STATE BANK OF PATIALA 25 5 48 10.9218 ANDHRA BANK 49 13 62 10.6019 STATE BANK OF TRAVANCORE 14 2 20 7.9

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20 STATE BANK OF INDORE 14 1 41 5.2821 PUNJAB & SIND BANK 29 20 29 4.7122 STATE BANK OF MYSORE 9 3 15 3.6623 DENA BANK 41 38 30 3.3724 ALLAHABAD BANK 34 3 39 2.7625 S.B OF BIKANER & JAIPUR 24 5 30 2.6226 STATE BANK OF SAURASHTRA 10 20 17 0.8127 BANK OF MAHARASHTRA 8 9 8 0.37

TOTAL 2197 654 2653 600.16

SOURCE: THE JOURNAL OF BANKING STUDIES, SEP.2005. P.9

COMPUTERIZATION IN PUBLIC SECTOR BANKS

All India wise analysis of computerization in 27 public sector Banks are

depicted in the Table -3 From the table -3 it is clear that only 13,078 Branches

accounting for 28.11 percent out of 45,628 total Branches are fully computerized

and 35.5 percent of Branches are partially computerized and equal percentage of

36.39 percent Branches are not computerized. It is apparent from the table that

state Bank of Patiala Branches are fully computerized and ranks First by

securing 79.17 percent. Andhra Bank ranks second by securing 67.87 percent.

Among the banks 75.40 percent of syndicate Bank branches are not

computerized.

Only 100 percent computerization of Branches can render quick and

efficient service to the customers there by they can introduces ethical Banking in

an effective manner.

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TABLE 4.3. COMPUTERIZATION IN PUBLIC SECTOR BANKS

S.No PUBLIC SECTOR BANKSTotal No. of

Branches

BranchesFully

Computerized

Branches partially

Computerized

Branches Not Computerized

1 STATE BANK OF INDIA 9038(100%)

3177(35.15%)

3870(42.82%)

1991(22.03%)

2 PUNJAB NATIONAL BANK 3864(100%)

268(6.94%)

2409(62.34%)

1187(30.72%)

3 CENTRAL BANK OF INDIA 3114(100%)

983(31.57%)

238(7.64%)

1893(60.79%)

4 BANK OF BARODA 2735(100%)

563(20.59)

1204(44.02)

968(35.39)

5 BANK OF INDIA 2531(100%)

976(38.56%)

1094(43.22%)

461(18.22%)

6 CANARA BANK 2415(100%)

760(31.74%)

863(35.73%)

792(32.8%)

7 ALLAHABAD BANK 2056(100%)

399(19.41%)

340(16.54%)

1317(64.05%)

8 UNION BANK OF INDIA 2021(100%)

113(5.59%)

1270(62.84%)

638(31.57%)

9 SYNDICATE BANK 1742(100%)

235(13.49%)

1080(62%)

427(75.49%)

10 UCO BANK 1710(100%)

41(2.4%)

444(25.96%)

1225(71.64%)

11 INDIAN OVERSEAS BANK 1432(100%)

460(32.12%)

699(48.81%)

273(19.07%)

12 INDIAN BANK 1381(100%)

473(34.25%)

47(3.4%)

861(62.35%)

13 UNITED BANK OF INDIA 1301(100%)

240(18.45%)

361(27.75%)

700(64.2%)

14 BANK OF MAHARASHTRA

1229(100%)

543(44.18%)

- 686(55.82%)

15 DENA BANK 1135(100%)

469(41.32%)

280(24.67%)

386(34.01%)

16 ANDHRA BANK 1077(100%)

731(67.87%)

26(2.41%)

320(29.72%)

17 ORIENTAL BANK OF COMMERCE

977(100%)

172(17.6%)

716(79.29%)

89(9.11%)

18 STATE BANK OF 887 156 337 394

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HYDERABAD (100%) (17.59%) (37.99%) (44.42%)

19 VIJAYA BANK 829(100%)

133(40.17%)

8(0.97%)

488(58.86%)

20 SBBI 802(100%)

346(43.14%)

5(0.62%)

451(56.24%)

21 PUNJAB & SIND BANK 753(100%)

37(4.91%)

566(75.17%)

150(19.92%)

22 STATE BANK OF PARTIALA

725(100%)

574(79.17%)

4(0.55%)

147(20.28%)

23 STATE BANK OF TRAVANCORE

674(100%)

217(32.19%)

339(50.3%)

118(17.51%)

24 CORPORATION BANK 663(100%)

423(63.8%)

- 240(36.2%)

25 STATE BANK OF MYSORE 604(100%)

145(24%)

157(25.99%)

302(50.01%)

26 STATE BANK OF INDORE 423(100%)

104(24.59%)

120(28.37%)

199(47.04%)

27 STATE BANK OF SAURASHTRA

410(100%)

140(31.15%)

39(9.51%)

231(59.34%)

Total 45628100%

13078(28.11%)

16516(35.5%)

16934(36.39%)

Source: The Journal of Banking Studies. July - 2002.P.13

4.5 CORE VALUES AND ETHICAL CONCEPTS

“ Failure is never final, and success never ending”. So steps should be

taken to introduce core values and Ethical concepts will help in many ways to

introduce and implement Ethical Banking effectively. The banker and customer

must have proper understanding of the following concepts, so that they can

interpret it and adhere to a code of Ethics that will encompass both individual

gains and altruism. Then only it will serve as a lubricant fostering the smooth

operations of Banking activities with greater co-operation and co-ordination.

ACCEPTANCE: The mental attitude that something is believable

and should be accepted as true.

ALLEGIANCE: the act of binding yourself (intellectually or

emotionally) to a course of action.

AUTHENTIC: Conforming to fact and worth of belief

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CITIZESHIP: The status of a citizen with rights and duties

COMMITMENT: Deeply Involved and bound to an action

CONCERN: Something that interest you because it is important or

affects you

CONDUCT: Manner of acting or conducting yourself

COURAGE: A quality of spirit that enables you to face danger of

pain without showing fear

DEDICATION: Commitment towards particular purpose (or) cause

DUTY: to fulfill your obligations

EMPATHY: Identification with and understanding of another’s

situation, feeling and motives. Look at the world from the other

person’s perspective.

EQUALITY: The quality of being the same in quantity or measure

or values (or) value Status

ETHICS: The way people behave based on how their belief about

what is right and wrong influence behaviour.

EXCELLENCE – is the pursuit and achievement of exceptional

quality

FAIRNESS: Conformity with rules (or) standards “the Judge

recognized the fairness of my claim.

FAITH: Confidant belief in the truth, values or trustworthiness of a

person, idea or thing.

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FORGIVENESS: Compassionate feeling that supports a willingness

to forgive.

GENUINE: Actually possessing the alleged or apparent attribute

(or) Character, Genuine leather

GOODNESS: The quality or state of being morally sound.

HOPE: The feeling that something desired can be had (or) will

happen.

HONESTY: is being forthcoming and truthful when we interact with

others and ourselves. It ensures sincerity in our relationships both

internally and externally.

INTEGRITY: to do what’s right; legally and normally

JOY: Gladness or pleasure or delight

JUSTICE: The state of action or principle of treating all persons

usually in accordance with the Law.

LIBERTY: The condition of Being free from restriction or control

LOVE: A feeling of deep desire and affection towards a person

LOYALITY: to bear true faith and allegiance to others.

MERCY: Forgiveness shown towards someone whom you have the

power to punish

PEACE: the absence of mental stress or anxiety

PERCEPTION: Knowledge gained by perceiving “ a man admired

for the depth of his perception”.

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PERSEVERANCE: Steady persistence in adhering to a course of

action, a belief or purpose steadfastness.

PRUDENCE: Attentiveness to possible hazard caution (or)

circumspection as to danger or risk .

REASON: A rational motive for a belief or action

RESOURCEFULNESS: the quality of being able to cope with a

difficult situation i.e., “a man of great resourcefulness”.

RESPECT: Something that you consider important to another.

RESPONSIBILITY: - obligations that come with the job

SINCERITY: Genuineness, honesty, and freedom from duplicity.

STEWARDSHIP: Stewardship is responsibility for taking good care

of resource entrusted to one.

TOLERANCE: Ability to endure stress, pain, radiation etc.,

TRUST: is the result of promise kept

TRUTH: Truth is a comprehensive term that in all of its nuances

implies accuracy and honesty

TEAMWORK: work with others towards the common goal

VALUES: cone belief that guide and motivate attitude and actions.

WISDOM: The ability to discern or judge what is true (or) lasting,

insight (it is a characteristic of wisdom not to do desperate thing)

WORK: Physical or mental or activity directed toward the

production or accomplishment of something.

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4.6 CONCLUSION

There can be many spectacular or extraordinary illustrations of Ethical

Banking only when there is a conducive and congenial climate of identifying

himself with the bank. Indicating a sense of belonging, which form the bedrock

for Ethical Banking. Trust begets trust, and this is the first step in building Ethical

Banking and for a better bon homier between Banker and his customer.

“THE BANKER NEED NOT DO DIFFERENT THINGS, THEY NEED TO

DO, THINGS DIFFERENTLY”`