Banking has changed a lot from previous days' traditional banking. Today, banks are fast accepting cutting-edge technology making the loan portfolio a dynamic one, which reduces the risk and produces higher profits adopting proactive business strategies. There is need for robust regulatory/supervisory regime, which enables the banks to stand tall even in the time of crisis.
The golden era of 3-6-3 (get money at 3%, lend it at 6% and retire to the golf club by 3 p m) has been over for a long time now. Traditional "intermediation": soliciting money from those who have a surplus, i.e., savers to the areas in which it is deficient, i.e., production is fast disappearing. This has led to squeeze in spread with many players competing with each other for their pound of flesh in the game of finance. In this game, as in others, the players having the strongest ability to withstand vulnerability to such financial shocks, will last the longest. Those who lose out in the art of financial engineering will just wither away.
Poor management, excessive risk taking without understanding if they are worth-taking, recurring financial irregularities and a poor operating environment could be the common reasons. But it pinches when banks forget even the basic tenets and invite chaos upon themselves. These tenets include: "know your customer", "understand the legal framework in which you are working", "understand thoroughly the sources of repayment and possibility of non-performance" and of course, "price your services appropriately". Improper management of assets and liabilities has also been the other bane. |
