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Pathology of nationalized commercial banks.

A commercial Bank as an organism is a complicated aggregation of complementary cellular compartments. The health of a bank has therefore its origin in fitness of each one of these compartments and the illness reflects the dysfunction of one or more of the same.

The apparent debility and general dilapidation points out that the NCBs have been afflicted with a serious malady for quite some time. Although some morbid and depraved conditions did exist in the pre-nationalization period, yet deterioration at a galloping pace set on after the nationalization took place. It is therefore, imperative that immediate and appropriate curative measures are taken to safeguard and strengthen the immune system so as to keep these institutions in working condition at least.

"Pathology" or science of diseases is therefore intended to be applied to identify the nature and symptoms of the ailments pertaining these organisms. So that proper diagnosis leads to suitable prescription for treatment purposes to restore the health of the NCBs through psychotherapy, medication or surgery. Broadly a Commercial Banking institution can be segmentized into the following cellular compartments.

1. Personnel

2. Financial

3. Resources Mobilization

4. Lending

5. Peripheral activities or services.


The Commercial Banking is an industry which provides service to its clients. The quality of the service is determined by the quality of the personnel engaged by a bank for that purpose. This compartment due to gross impairment in functioning has reached a stage where its pulsating microcosm is hardly capable of adapting its structure and activity to the demands and stresses of the objective conditions or prevalent environments. It is observed that a number of microbiologic agents, ranging in size from sub-microbiologic to grossly visible nematodes have massively attacked this compartment. These viruses, and bacterias are obligate parasites that is, they can survive only within a living organism.

These vagrant and variegated parasites have pushed these institutions to have verge of serious break-down, near to collapse of system and discipline as evidenced by the following symptoms:-

* Overstaffing

* Demeritization

* Bureaucratization

* Unionization

Overstaffing: In the overall scenario of wide spread corruption, favouritism and influence peddling, a large number of recruitments have been made without consideration for matching quantitative requirements. The politicians, civil and military bureaucrats, highly placed bank executive joined by Union Mafia have had a free hand, to act on their own discretion this behalf.

It did not only caused unnecessary drain on the resources, but also impaired the quality of service. As an honest day's work is not available for each and every member of staff, many of whom possess very low level of capabilities. One can find the staff whiling away time almost everywhere, even contaminating and infecting those who have will as well as some work to perform. One may also see hordes roaming to and from in the name of unionism on whole time basis disturbing those who want to work and glorifying morbid idleness and germinating contempt for work and duty.

As the transfer and postings can no more be done on merit and against commensurating requirements. This phenomenon has distorted the position. The comparatively unattractive places where staff is needed to remain understaffed, whereas in big cities and towns there are bulging pockets of excess staff who cannot be moved for proper utilization.

Demeritoriousness: There are a very few personnel at management level who apply themselves adequately to their assignments and jobs. Most of them keep busy in entertaining friends or relatives, sipping tea or in making personal call to the superiors to revamp their so-called public relationing and to their subordinates to attend to their personal chores and petty requirements.

Those who try to bank upon their work suffer and are given rotten postings and considered as outcast deserve to be avoided and shunned. Wherever a glimmer of talent reflects in innovation or application to assignment, it is crushed and ridiculed. In other words merit is condemned in practice, while noisily lip service is paid to the same.

Professionalism which improves with training, experience and proper application does not carry any value in the corridors of NCBs. The flattery and personnel service provided to the superiors is the most sought after virtue. Basically Banks as financial institutions require high degree of professionalism reflected in highly developed technical skills and job knowledge. But presently professionalism carries no premium for advancement and is not considered worth bothering.

In promotions the most important factor is the "Parchi or Sifarish". A very little heed is paid to the merit. Those who do not use their PR are usually ignored not withstanding in some cases outstanding performances or other just and relevant considerations. The same is the case with foreign postings, where the persons, who can pull the strings or use their connections are sent, without taking into account their competency, job knowledge or track record. It has resulted in the malfunctioning in the outside units as well as in frauds and defalcations involving huge amounts and colossal losses.

Bureaucratisation: Due to interaction of bureaucrats running various ministers and bank executives/officers for being in nationalized sectors, the managerial cadre particularly at top level has been seriously infected by bureaucritaria. Banks are business houses, which are supposed to provide quality service and maximize the profits and earnings. But unfortunately due to the above stated affliction, they have started to behave like government functioners or bureaucrats who carry legacy of by-gone British masters mixed with obnoxious strains of ex-toadies and present feudal lords making the things go from bad to worse.

As such a large number of senior executives of NCBs are found lacking in professionalism and having little application to Bank working. They wear two faces one for the superiors and ministry people, with humility and subservience written on their foreheads and the other for subordinates as victimizers. This type of officials get out of turn promotions, who are unable to do justice even to their existing assignments.

Unionism: This obstinate virus is resistant to any medication. It entered the body organisms as a bacteria useful for the survival of the same and it actually meant to strive for safeguarding the interests of low ranking functionaries. But it turned into Mr. Hyde or Mafia machine to carry all type of destructive and nefarious activities, eating up steadily and continuously the very organisms. They being contemptuous of any system remain hell bent to flout all the rules and regulations.

The discipline has been sent down the drain and for them bank's work has very low or no priority at all. The pride is taken in loot and plunder, disturbance and chaos and in humiliating and insulting those who may dare to come in their way. These conditions are more conducive for their morbid activities. Most of the recruitments, promotions, transfers and postings are done on behalf of union people, which are of course against considerations, mostly in cash. Previously it was limited to the clerical and non-clerical staff, but with passage of time their sway has encompassed officers and executives also. Hence the hierarchy has collapsed and "Gondaism" is the order of the day.


Bank as a financial institution is a business house which should work for maximization of profits, through increase in income and control of expenditure. To achieve this goal it is imperative that the financial discipline is maintained particularly through avoiding irregular, unauthorised and wasteful expenses and by following stipulated ceilings and laid down procedures.

However, the financial discipline which can be equated with physical immune system has been rendered very infirm and feeble. One may say that the candle is burning on both ends. The rules, regulations, procedure etc. are hardly observed at various tiers of hierarchy. A number of loopholes are used to perpetrate evasion of discipline and incur wasteful expenses. The major openings available to various levels are as follows:

1. Excessive staff

2. Vehicles

3. Fuel

4. Entertainment

5. Travelling expenses

6. Unauthorized fringe benefits.

7. Telephones

8. Medical.

Excessive Staff: Excessive staff is a major financial drain on the resources of NCBs. Besides unmatched recruitments a lot of promotions have been given without considering the commensurating available positions posts. To accommodate the excessive staff and place the promotees, various methods are being used for instance:-

* Provincial Headquarters with departments, Divisions and set ups parallel to the Head Office have been created in all the provinces including Balochistan.

* Circle offices, Zonal offices have been created in a very large number with little work-load to go around.

* Circle audit offices have been created, again having very little to do as far as the bank's work is concerned.

* Executive with impressive titles are made to occupy seat where they remain highly underutilized, or given postings, where they prove square pegs in round holes.

* Again almost at all levels the quality of work is seen deteriorating due to this state of affairs.

* A large army of security guards has been employed by all the NCBs who have little utility for their assigned duties. On the other hand being idle all the time their minds are devil's workshops. They remain busy in disruptive activities most of the time and play active role in Union Mafias to squeeze the bank as far as possible for irregular monetary gains.

Again each NCB has a large number of drivers, who mostly remain idle and sometimes took away and keep the vehicles for their personal use unauthorisedly and forcibly. This cadre is useless as a lot just like security guards.

Vehicles: An other major financial burden is vehicles where in the position for a poor country like ours appears to be just absurd and ludicrous. Huge fleets are kept by the senior executives at head office, provincial head quarters, circle offices, zonal offices and audit offices, without much consideration for their utility or need. Vehicles are used mostly as status symbols to cater to the personal requirements of the executive and other and not as means of transportation to promote the interest of the institutions concerned.

Likewise a large number of vehicles have been whisked away by union people at Head Offices and other offices. The real burden of these vehicles is reflected in the exorbitant maintenance costs and recurring expenses, besides considerable quantum based on fake and forged bills. As such the drain is twofold, first on purchase of these rapidly depreciating vehicles far in excess of the requirements and second on the maintenance of these huge fleets of vehicles.

Fuel: At certain levels there are no limits on the expenditure on fuel. As such this head is misused enormously not only by incurring unnecessary expenses thereunder but also by using the same as a subterfuge for other purposes. Particularly Union people are accommodated under this head without any bounds. In case of one NCB, where tens of vehicles are under the use of Union Mob, the drivers are supposed to keep the vehicles overnight and are paid for 10 liters of petrol per day if off duty and 20 liters per day if on duty. The top executives who keep score of vehicles for themselves incur expenditure on fuel which is beyond the wildest imagination of an average citizen.

Entertainment: The most of the entertainment in NCBs is found to be unrelated to the promotion of business. The top executives, circle executives, zonal heads and managers entertain for promting their personal relationing with politicians, bureaucrats or their peers in other institutions. Often the head of entertainment is used to entertain the relatives and friends. In one case chief executive of NCB, while visiting a provincial head quarters of small province desired that feast for his son's friends who is a starter commissioned officer in army is arranged on Bank's expense and later it transpired that his son is free to entertain any number of people while in Karachi at the costliest restaurants in this manners. What is right for goose is right for gender and in this way this head of expenses is used mercilessly without any head to the business purposes for which it is meant.

Travelling Expenses: This head of expenditure is misused by the CEOs and other high ranking executives through undertaking ungainful and unnecessary touring of foreign countries on one pretext or the other. Where they mostly remain busy in pleasure trips and come back with bags full of gifts and gadgets on bank's account. Even when they have to attend personal engagements at places away from head office, some sort of manipulation is usually made to draw travelling expenses.

For instance on the eve of Eid Festivals, for many of the top executives belonging to Punjab, a meeting at Lahore prior to that period is arranged. In the same way if scion of a certain VIP is getting married at Peshawar, an EC or Board meeting is announced at Peshawar about that period. This attitude goes down the line most of the circle executives and zonal heads in Punjab do not keep their families at the places of postings and some of them at each weekend arrange the tour of branches nearest to their places of residence. Union people also get the benefit of travelling expenses, usually on the strength of fake and false bills and trips.

Unauthorized Fringe Benefits: The MOF has allowed certain fringe benefits, particularly for executives in addition to the regular pay packets, like domestic help, gas, electricity charges, telephone charges for residence etc, which are outside the income liable for levy of income tax. But being as usual not satisfied with the quantum thereof, the top executives draw benefit, much beyond their entitlements. For instance SEVP of a NCB is entitled to the salary of two domestic helps at the rate of Rs. 3,500/- but he draws salary of eight domestic helps at the rate of Rs. 10,000/-. Union people taking advantage of such irregularities at the top blackmail them and collect "Jaga Tax" in the garb of contributions to various imaginary causes and functions.

Telephones: Like the above stated heads of expenditure the misuse of telephones is also rampant. Particularly at managerial and executive level adequate checks are not available to keep these expenses within reasonable bounds as required for the efficient functioning of the institutions.

Medical: The medical facility was the most remarkable boon which came with the nationalization. But gradually it also got abused. The higher executives started to get treatment abroad on bank's expense which are very well available within the country. While on the lower levels the entitlements are being considered as part of emoluments and as a matter of right most of the employees draw their full medical entitlements each year. It is a shame that such an excellent benefit has been unabashedly misused in NCBs.

Resources Mobilisation

Banks get their life blood through efficient and wholesome resources mobilization. Nerve system, veins and arteries or Head Office, Regional controlling offices and Branches network attract and assure smooth flow of the life blood, which is required for the very survival of these institutions. This life blood obtained in form of deposits is then used for transfusion purposes to the business and industry for the overall health of the economy. Under the prevalent conditions this is getting harder and harder because of the following:-

* Several other financial institutions like DFIs, Modarabas, Investment Banks are also there to raise deposits for their operations.

* Government has allowed a number of private commercial banks to operate in addition to two recently denationalized ones.

* Twenty one Foreign banks are giving tough competition to the nationalized commercial banks.

* According to the newly promulgated prudential regulations the 65 per cent of their deposits are available for ultimate lending operations.

* Deposit mix of NCBs is not favourable, resultantly the weighted average of rate of return is found in the vicinity of 9 per cent which is rather high and compares very adversely with that of foreign banks return of about 5 per cent.

In view of above it is observed that whereas the competition has got tougher and new players have now been inducted vying for deposits, the Nationalized Commercial Banks with their vast net work have not been able to retain their earlier share, what to speak of increasing the same. The main reasons for the above said state of affairs are:-

* Deterioration in quality of service. Most of the counter staff and supervisor remain busy in activities unrelated to their callings of official duty and as such inefficiency. discourtesy and indifference have taken over their day to day working.

* Abhorrence to innovative thinking and application has left their functionaries sticking to the obsolete and outdated products and marketing techniques.

Under these circumstances the resources mobilization has been suffering from deficiency of red cells necessary for absorption of oxygen to ensure healthy blood supply through successful liability management.


The object of a bank being profit maximization or increasing the excess of income over expenses mainly depends on the placement, utilization and allocation of resources mobilized by it which form the assets of an institution in addition to capital and retained earnings. To generate profits these assets must continue to perform. In case the funds placed, utilized or allocated get stuck up, these assets become nonperforming. It is like a part of human body, which stops moving due to paralysis and dies eventually if proper treatment is not given to that particular part or the entire organism. Unfortunately for NCBs most of assets have turned non-performing. The reasons for turning their assets sour or that of setting on of the paralysis are enumerated below:-

1) Non-compliance of the basic principles of lending:

* Looking into the credit history of the borrowers.

* Seeing through the purpose of loan.

* Conducting proper analysis of the proposal.

* Undertaking assessment of the overall strength of the business.

- Making in depth project appraisal in case of long term loan.

2) Unethical lending practices, the uprightness and integrity is more often than not comprised. The high standard of the strength of character is found lacking which is needed to avoid temptations.

3) Pressure of unscrupulous politician and depraved bureaucrats from the ministries resulting in loans based on favouritism and nepotism.

4) Ambiguous lending policies, without clear-cut and known strategy, there are no set parameters for selection of borrowers on sectoral or individual basis.

5) Government intervention by pressing the nationalized banks to extend loans according to their whims for political gains. forgetting that the banks are using funds collected as deposits from public as trustees and they should not be unduly pressurized to make feeble or unrecoverable loans.

6) Centralization of the sanctioning authority is still in vogue. Although so much lip service and ink service have been paid to decentralization to ensure efficient and more equitably spread lending, yet the concentration of power can be witnessed as far as practice goes causing disease like congestion as well as malnutrition.

7) Another disease which is afflicting the nerve centres of NCBs is mulophobia. To please a very vocal but basically obscurantist group, who wish to do the impossible task of rolling back the wheel of history, the persons on the helm of affairs appreciating fully well the absurdity of the situation keep on dancing to the harsh tunes of mulophobia. The resultant confusion and fear has been acting as repelling agent to the detriment of the prospective foreign investment so much needed for the growth of the economy.

Illiteratus: Good lending requires training based on sound basic education in the related disciplines. Unfortunately most of the CEOs of the NCBs and other high ranking officials being semi-literate themselves are infected with the virus of illiteratus. They are contemptuous of education and training and think it as a wastage of time or an alternate for some sort of recreational activity. As a result the job knowledge, analytical skills are mostly not found in the personnel assigned for the purpose of lending and those who may be knowing a little about this are kept away this field.

Gangrene-U: The lending in NCBs has also gradually contracted gangrene-u, which in keeping with its known characteristics is eating up the very organisms. Gaining encouragement due to almost de-facto take over of banks' affairs by using strong arm tactics. Unionwalas have also made successful inroads in the sphere of lending. As they are least bothered about the rules, regulations, principles, parameters, procedures or systems, their actions are little short of robberies and plundering.

Recently a union leader, having cheek to bid for the purchase of an NCB put up for auction/privatization by the Government, most blatently flouted all norms of banking and collected funds in millions despite opposition by officers, managers and executives by way of creating irregular advances in the names of clerical and nonclerical staff. Almost daily a statement is seen in this behalf by some petty/salable political leader or by himself asking the Government to give away the bank to his group. Perhaps not satisfied with the golden eggs, it is desired by them to kill the goose.

Peripheral Activities and Services

In view of the inefficiencies which have pierced the very core of the head of NCBs, the peripheral activities and services have also suffered heavily. The lion's share of forex business being the most profitable portion of banking services have gone to the foreign banks, although they have very small network of branches.

Similarly, the home remittance business, which used to be the major source of deposits for the NCBs has been constantly eroding. According to recent report compiled by NDFC, the delays in collection of funds from one unit to another and one branch to another has driven away the remitters to seek other venues like Hawale Walas and Hundi walas as well as foreign banks to channelise their remittances. It is as a matter of fact reflection on the deteriorated service standards of these institutions.

Local remittance business and bills business due to the vast network of about 7000 offices is still mainly handled by these banks, yet if the things continue to be what they are, the time may come that other institutions may take over from them. The above are the diseases which have been identified, in the next write up, the treatment will be prescribed.
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Author:Choudhry, Maher Elahi
Publication:Economic Review
Date:Mar 1, 1993
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