The rationale being used by a number of privately-owned banks to bring back an archaic management practice, i.e. centralising all decisions and stripping branches of that crucial role that made banking easy for customers is that it will stop the flood of nonperforming loans (NPLs) that has engulfed the banking sector. Nowadays, an individual hoping to open an account in one of these banks will have to wait two to three days for verification of all information from the Head Office, a practice which used to take about 30 minutes previously.
It is understandable that bank managements are alarmed by rising NPLs. The fact is that given the size of the banking sector today, centralising the loan sanctioning process will backfire in terms of ease of banking for the hundreds of thousands of customers each bank serves. Though NPLs exploded primarily because branch officials in various banks have been found complicit in unlawful practices that have led to the culture of NPLs nationwide, it is difficult to disagree with a recent survey by Bangladesh Institute of Bank Management (BIBM) titled “Centralised and Decentralised Banking System.”
The move by bankers is aimed at reducing corruption, embezzlement, fraud and malpractices at branch level. But we learn from the BIBM survey is that loan recovery and amount of bad loans are almost equal in both centralised and decentralised banking systems, whereas the drawbacks are manifold. Customer satisfaction will nosedive and business expansion for customers will become more cumbersome if bank branches are prohibited from approving loans. The only way to stop malpractices is to set in place checks and balances that normal banking practices dictate. Instead of adopting the numerous recommendations that have been put forth in successive probe reports like, depoliticising board managements, checking the malpractice of banks taking out loans from one another, etc. The bottom line is that is halting NPLs is purely a governance issue that needs to be addressed, not by adopting measures that have no guarantee of working but one that will certainly increase customers' suffering.