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What The New Kids On The Banking Block Must Do For Staying Power

08/01/2016 8:32 AM IST | Updated 29/08/2016 9:42 PM IST
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Around seven years back, with the raging financial crisis threatening to reach the sheltered shores of the Indian subcontinent, the trials and tribulations of investment banks and foreign banks captured everyone's attention. While the Indian banking sector remained fairly insulated on the business front, from a talent and HR perspective the industry has seen tough times, and has struggled to regain its sheen.

It is perhaps a case of divine justice that the sector is now being driven back into the thick of action and activity fuelled by the new crop of small finance and payment banks that hope to correct what ails the banking system in India today. It seems to be an era where banks are bound by a conscience, and are seeking to enter segments, sections and stretches which have been far away from the reach of conventional banking, rather than fight it out for parochial profits in big cities and towns.

There is widespread belief that just as the e-commerce entrepreneurs are wiping out brick-and-mortar retail, the advent of technology-driven banks will soon transform the beliefs of banking.

Banks and non-banking financial companies (NBFCs) are taking the threat offered by 23 new banks (including the two large banks, IDFC and Bandhan, that started operations in 2015) to their business fairly seriously, as the market place for money will now pit the nimble, disruptive young guns against the might and muscle of the big bosses of traditional banking. There is widespread belief that just as the e-commerce entrepreneurs are wiping out brick-and-mortar retail, the advent of technology-driven banks will soon transform the beliefs of banking.

The challenge for HR

Banking talent, which is limited in our country, was back in demand after the financial crisis especially for the control functions. The large established players started ring-fencing their key/critical talent by paying them larger bonuses and higher annual hikes. Other sectors like telecom, pharma and IT also followed suit. The payment banks which are largely dependent on the technology platform have made some key hires from IT firms, banks and e-commerce companies to shore up talent. Cash management and compliance folks from banks have also been hired to fill the need of designing the product suite.

The scenario is slightly different for the small finance banks - they are largely focusing on hires in the retail, micro SME segments across both business and control roles. Their preferred talent catchment area is likely to be other banks or large established NBFCs to meet their talent requirements. Most of the new age banks are exploiting the entrepreneur in some employees while others are being lured with the concept of wealth creation by means of ownership of the firm.

Today most of the established banks, NBFCs and conglomerates face severe challenges in hiring "ready" talent in rural and semi-urban areas. With these new entities running full steam, the talent market is likely face additional stress and even see influx from other allied retail and distribution industries. This brings in the necessity of having a defined succession planning program for all key and critical positions.

It's extremely important that these new banks adopt a state-of-the-art performance management system and follow it rigorously...

Capability building is another focus area for banks given the talent catchment is varied across multiple industries and geographies. To be able to run an efficient and homogenous organisation, targeted development programs could come in handy for the new banks and they may choose to follow the "academy approach" like many established organisations.

Another challenge staring at these new banks, which they are likely to face in years to come, is differentiation. The ability to differentiate performance and thus align rewards is critical to promoting an overall performance-based culture. Large banks have often being accused of being socialistic in their approach while managing pay and this has come back to haunt them in the long run. It's extremely important that these new banks adopt a state-of-the-art performance management system and follow it rigorously so that they don't fall prey to similar issues in years to come as they plan to expand.

Given the hiring in the small banks is likely to run in thousands, firms are likely to adopt highly efficient screening mechanisms to manage this large-scale talent acquisition. Competency-based algorithms will be the favourites for selectors to get the "right" talent in.

The road ahead

It is pretty evident that these new banks have their hands full on all fronts - especially on people-related matters, which can either make or break them. Lessons are easier said than learnt and while they have their bigger banking brothers and powerful pioneers to seek experience from, they will have to balance out the temptation of filling up a larger-than-life banking canvas and the realities of making the business model work in a punishing market. Money is always pivotal in a bank's DNA, both as a raw material and as a reward, and it will be critical to see how these new banks manage that sensitive subject.

There are many dimensions of HR that will require focus right from the organisation design and grading structure to the performance-management system and payout mechanism; it is important to divide them into what is required upfront to hit the ground running and what will come in later; and what will eventually help them move from good to great. Passion and perseverance has got these chosen few the coveted license; patience and prudence will make them the preferred pioneers of economic change in the country, as they usher in a regime of sustained financial inclusion for the nation at large.

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