System follows people

If people can misbehave, so can the system. The ugly confrontation between Murthy and the Infosys Board is closely followed by new bugs in the Finacle core banking solution. Finacle is a product of Infosys.

Bank of Baroda has notified its customers that it is migrating to an improved version of Finacle. Consequently, many deposit accounts have been unauthorisedly debited with various amounts. According to the bank's MD and CEO, the debits are being reversed on a war-footing.

It is a strange coincidence that Ravi Venkatesan, the co-chairman of Infosys is also the chairman of Bank of Baroda.

What ails Bank of Baroda ?

Bank of Baroda has the reputation of being one of the few well-managed banks in India. It is also reflected in the market price of its shares.

Therefore, any mishap in the bank attracts huge interest. A few days ago, it was reported that one of its branches in Ahmedabad was likely to lose around Rs.350 crore in the bill transactions of a particular company. The modus operandi was crude and archaic. Bills were purchased by the bank and when they remained unpaid for a long time, further bills were purchased to square off the earlier transaction. This manoeuvre was repeated till the irregularity could no more be hidden.

As if this was not enough bad news, now we are told that Ashok Nagar, Delhi branch of the same bank has illegally remitted foreign exchange worth Rs.6,172 crore to Hongkong without following normal procedure. Rice, cashew and pulses were supposed to be imported, but actually no import took place. The bank did not lose its money. But its reputation is now in tatters.

Systems and procedures were flagrantly violated. Manual entries were effected overriding electronic systems. RBI's response will be keenly watched. Names of the culprit-entities who indulged in illegal remittance of apparent black money should be disclosed.

New experiment in public sector banks

GOI has come up with a new policy called 'Indradhanush' ('rainbow') with a 7-point agenda for public sector banks. One of the points is not to be inhibited by present practice of appointing only public sector bankers as chiefs of such banks.

Many wondered whether executives accustomed to sumptuous salaries would like to serve PSBs. At last, the government has succeeded in roping in P.S.Jayakumar to be MD and CEO of Bank of Baroda which is among the largest three banks in India. Ravi Venkatesan, former Chairman of Microsoft India will be the non-executive Chairman of Bank Of Baroda. This is quite an experiment, having both Chairman and MD from private sector.

Will the experiment succeed? Prakash Tandon who was the first Indian to head Hindustan Lever Ltd. became Chairman and Managing Director of Punjab National Bank in early seventies of the last century. He was not a banker otherwise.Though he tried to change the bank's bureaucratic culture, he was not a roaring success partly because the government control on the bank was tight and unrelenting. The government has now assured that it will not interfere in the functioning of PSBs.

P.S.Jayakumar is not new to banking. As a Citibanker, he was interestingly once the Head of Balance Sheet Optimisation in Asia-Pacific region of Citibank. Optimising the more intractable imponderables in public sector culture may be more difficult. At present, he is the MD of VBHC Value Homes. An M.Com. from University of Madras, he is also an MBA from XLRI, an ACA and an alumnus of London School of Economics.

Unlike Bank of Baroda, PNB, IDBI Bank and Bank of India will not have the benefit of fresh blood from private sector. The experiment in (or with?) Bank of Baroda will be keenly watched.