Friday, December 16, 2016

Rajnarain Bose's house in Deoghar[1]

Introduction

Manindranath and
son Asoke
My father Asoke (son of Manindranath, the youngest son of Rajnarain Bose) left Deoghar, our ancestral home, when he was only about 12 years of age. This was prompted by the untimely and early death of both his parents - one after the other. After their death, almost everything at the Deoghar home was reportedly taken away by people (including some relatives) on various pretexts. My father - far too young to comprehend what was going on - could save absolutely nothing for himself when he had to leave Deoghar. He came to Calcutta to reside with his aunt Leelabati Mitra at 6 College Square. He never went back. (If anyone has any photograph, correspondence, diary or memorabilia relating to him or other relatives, I would be grateful if the present owner narrate details or offer me a copy of the available documents.)

Rajnarain's earliest residence at Boral

The house was at Boral, South 24 Parganas, West Bengal, where Rajnarain first came to stay for a considerable period of time. It was in ruins when my father - the young Asoke - returned to Calcutta from Deoghar, with the minimum of possessions.

Realising that he would not be able to protect or preserve Rajnarain Bose’s residence at Boral, my father Asoke donated the property to the Boral-based Rajnarain Bose Memorial Committee. I had paid a visit to the library some years ago and left my contact details, hoping that someone will be in touch, eventually. None ever did. The present constitution and activities of the committee, if it exists at all and is still functional, are not known.

Rajnarain's former residence at Boral has been turned into a school, and is functioning quite well.

Deoghar:

I travelled to Deoghar on 23 May 2011. The day was my father’s 100th birthday. That was my first ever visit to Deoghar. The visit was possible, thanks to Prof. Buddhadev Chakrabarty, one of the grandsons of Sri Anukul Thakur, founder of the Satsang Ashram in Deoghar.

What I discovered there saddened me deeply. Let me begin with the section of the road from its meeting point with the Jasidih-Deoghar-Baidyanath Dham highway, located just before one enters the city proper. The road leads to Ranchi, Dumri and Giridih. The road crosses the railway line, continues past the grounds and the house (on its left) that once belonged to Rajnarain Bose. The section of the road named after Rajnarain Bose had originally begun from the road junction and went past his residence. The identifier street signs that used to be at the road junction seem to have disappeared long ago.

What I discovered there saddened me deeply. Let me begin with the section of the road from its meeting point with the Jasidih-Deoghar-Baidyanath Dham highway, just before one enters the city proper. It leads to Ranchi, Dumri and Giridih. The road crosses the railway line, continues past the grounds and the house (on its left) that once belonged to Rajnarain Bose. The section of the road named after Rajnarain Bose had originally begun from the junction and went past his residence. The street signs that used to be at the road junction seem to have disappeared long ago.

I came across a crumbling, concrete road sign opposite the circuit house and a little away from his house, that displayed the words “Rajnarain Bose Path” (in Hindi and Bengali) and “Rajnarain Bose Road” in English. The colour on the concrete slab had faded. This was the only evidence about the road’s history[1]. The road was still recorded in the books of the Deoghar Municipality as ‘R. N. Bose Road’. But not a single signage on either side of the road or on the many shop signboards displayed his name or the official name of the road. For all practical purposes, the entire stretch of the road had come to be colloquially known as ‘Satsang Road’.

The same fate had befallen his house. I understand that, after he had passed away, a claim against my grandfather for some small amount was said to have been lodged in a local court. My father was far too engaged in Calcutta battling for survival to further get involved in fighting a claim about which he had no idea or information whatsoever, in a distant court at a place he had left for good. In due course, the entire property consisting of several acres of land and the house appears to have been grabbed by others.

The vast open space that had stretched from the house right up to the front gate, and the area all around the house, appears to have been sold off in odd parcels over time. Disorganised, unplanned constructions have come up all over that land, including the side and at the back of the house. A large number of tiny roadside shops have come up along the boundary wall facing the main road.

I met Dr. Gourab Ganguli, Principal of A. S. College of Management, Deoghar, who provided to me some interesting pieces of information about Swarnalata Bose and the house where she had lived, Rishi Rajnarain Bose, the house where he had spent his last years, and about the library named after him. While recounting the details, he remarked that if the people or the local administration of Deoghar had any idea about the person that had once resided there, or about the famous personalities (like Swami Vivekananda, Rabindranath Tagore) that had visited that house, or like Sri Aurobindo (of Pondicherry) who lived there, that section of the road would have been paved in gold.

The original house had also undergone change, and renamed as ‘Adharayatan’. (The present owner, one Sri Sudhirata Chatterjee, is reportedly bogged down with litigations against his family members.) The facade is different, the big varandah in front is gone, the house itself has been partitioned inside and additional rooms created.

Rajnarain Bose is now a forgotten chapter in the history of Deoghar (and in Bengal). There is absolutely nothing to indicate that Rishi Rajnarain Bose once lived there. There is no signboard or plaque to inform passers-by about the historical significance of that house, the legacy that the house carries, or the stature of the visitors that had once set foot in that house more than hundred years ago. (Reminds me of a close friend of Rajnarain, Michael Madhusudan and the lines from his famous poems, “দাঁড়াও পথিকবর, and “রেখো মা দাসেরে মনে.)

I enquired about another piece of property named Swarnalata Kutir, located in Rohini. Swarnalata was one of the daughters of Rishi Rajnarain, and the mother of (among others) Sri Aurobindo and the revolutionary, Biplabi Barin Ghosh. The house had once belonged to Lajjabati Bose, another daughter of Rajnarain, and was later gifted to my father Asoke. I understand that the property was “purchased”, and is presently owned, by Satsang Ashram. It is strange how the transaction took place without any knowledge of the actual, original owner or any member of our family and the ownership passed on.

Incidentally, Rajnarain Bose Memorial Library (near the clock tower in the busiest area of Deoghar, Baidyanath Dham) still stands, but is in extremely bad shape. No one uses the library any more; there is no fund to maintain the library nor for the purchase of new books. The ground is nowadays being used to hold local fairs. Property developers are waiting to grab the property some day. It may happen sooner rather than later.

I had an occasion to re-visit Deoghar on 21 December 2011. I found that the brick and cement road signage, which was till then the only indicator of the official name of the road, had been demolished by a bulldozer of the local municipality during its anti-encroachment drive. With that, all visible connections between Rajnarain Bose and Deoghar, now stands erased.

The only question that remains now is, can anything be done in Deoghar to preserve , in whatever manner possible, the memories of one of the greatest sons of Bengal and the ‘Grandfather of Indian Nationalism’? 
Further, would it be possible to preserve the houses of Rajnarain Bose and Swarnalata Kutir, places where many revolutionaries and renowned personalities had visited and also spent a part of their lives?
Can any sign board be suitably placed at the site of his former residence to serve as a reminder of its most famous resident? 
Can the former residences of Rajnarain and his sister Swarnalata be declared as heritage sites, properly identified, marked and protected?

+++++++++++++++
Notes:
  • Many have written back to me, but only to my e-mail ID. Such comments do not have a long shelf life. Nor can the other visitors to the site read them. Please, therefore, click on "Add your comments" below, and share your views with other visitors to this site.
  • For more of Deoghar in pictures, copy and paste this link to the address bar: https://picasaweb.google.com/110000807581780528807/RajnarainBoseAndDeoghar03
  • Contact: Rupnarayan Bose, E-mail: rnbose@gmail.com, Phone: +91 9830402343



[1] This is about Rishi Rajnarain Bose, my great grandfather. More specifically, it is an update on the house at Deoghar, Jhargram, India, where he had spent the last years of his life after he moved from Midnapore. For a full profile of his life, refer to the book Rajnarain Bose - A Tribute by Rupnarayan Bose.

Tuesday, November 29, 2016

UCP standards for the examination of transport documents[1]

Introduction
Transportation of goods is the lifeline that international trade depends on. It is a key segment of the logistics that connect the seller with the buyer across the globe. It includes several diverse elements.  A whole range of rules, regulations and practices apply to the process of transportation. One also need to know, among others, about marine insurance, and the rules governing documentary credit operations that relate especially to the transportation of goods.

Transport documents and the UCP
Several articles of UCP 600 (Uniform Customs and Practice for Documentary Credits) – a publication of the International Chamber of Commerce (ICC), Paris – deal with transport documents. Articles 19 to 24 explain the various forms of transport document. Article no. 25 describes receipts (however named) evidencing the acceptance of goods for despatch to a named destination. Articles 26, 27, 31 and 32 address other issues related to the transportation of goods. The examination of transport documents is ostensibly covered under a few sub-sections of Article 14 of the UCP.

I say ‘ostensibly’ because  ...(contd.....)


[This article is continued in the book 'Beyond Trade Finance', published on 13-Apr-2021 by Notion Press, and available at https://notionpress.com/read/beyond-trade-finance or at https://www.amazon.in/dp/1638508666]



[1] Published in Indian Engineering Exports, Vol. 9 Issue no. 6, September 2016, and Trade Services Update, Denmark, Volume 18, Issue 3, July-September 2016.
[2] For more information refer to http://www.lcviews.com/index.php?page_id=18

Sunday, November 06, 2016

Decoding UCP Article 30 on LC amount, quantity and unit price

Decoding UCP Article 30 on LC amount, quantity and unit price [1]
Rupnarayan Bose[2]

Article 30, UCP 600[3]
We are aware that if a beneficiary is to get his documents negotiated under a letter of credit, he must conform strictly to the terms of the credit. Compliance with the terms includes, among others, compliance with amount and quantity of goods being shipped. Under certain conditions, the UCP permits variations in both the amount and the quantity. These conditions are spelt out in Article 30 of UCP 600.
This article addresses the issues regarding variations in the quantity of the goods shipped, the amount of presentation under documentary credits vis-à-vis the amount and quantity for which a particular credit may have been issued. These are critical issues for the beneficiary, as also for a bank that issues a credit and later has to examine the documents presented for compliance. This is primarily because the exchange control regulations of some countries do not permit import of goods for values that exceed (even by a small margin) the amount stated in the credit. On his part, the buyer too may not wish to accept excess drawing or excess shipment. It is, therefore, necessary to understand the provisions of Article 30 that permit variations, and the circumstances under which it does so. Do note carefully the instances where 10% and 5% variations apply.
Variation in Amount, Quantity or Unit Price
Article 30(a) stipulates that (contd....)

[This article is continued in the book 'Beyond Trade Finance', published on 13-Apr-2021 by Notion Press, and available at 




[1] First published in LCM-Trade Services Update, Volume 15, Issue 1, January - February 2013.
[3] This interpretation is my based on my understanding of UCP, Article 30. Error, if any, may please be pointed out for rectification.]

When a non-bank issues a letter of credit


INTERNATIONAL CHAMBER OF COMMERCE, PARIS
 When a non-bank issues a letter of credit
Department of Policy and Business Practices
 ICC Commission on Banking Technique and Practice,
30 October 2002.

Because of widespread interest in this subject, the ICC Banking Commission has decided to post its official Opinion on non-banks and letters of credit on the ICC web site. The Opinion follows.
Articles 1 and 2 of UCP 500
When a non-bank issues a letter of credit
Query
We have been receiving a significant number of enquiries about letters of credit which are advised by some banks in the usual way, but are actually issued by a corporate, or the finance arm of the corporate and not a Bank.
These predominantly corporate L/Cs from Country U are ‘advised’ by banks on their letterhead in a SWIFT MT 700 format, and to all intents and purposes appear to be bank issued L/Cs, with the requirement to present documents to the advising or transferring bank, where documents will be processed and payment made after receipt of funds from the ‘issuer’.
Invariably they incorporate clauses to the effect that the L/C is subject to the UCP, and that where the UCP refers to ‘issuing bank’ then the issuer is to be construed as acting in all respects as the ‘issuing bank’.
Notwithstanding the fact that legally any entity can issue a letter of credit, our understanding is that the UCP only contemplates as issuers banks, on the basis that the issuing bank is undertaking a third party, independent guarantee of payment to the seller (beneficiary). It is this independence of a banker's letter of credit that is key to the payment undertaking.
The requirement by the seller for a letter of credit is two-fold: first that he has a guarantee of payment, and second that he can use the credit to raise pre-shipment finance from his banker.
In the case of the corporate L/C as we understand it, the guarantee of payment is not normally by an independent third party, and, as such, the credit risk is that of the corporate entity issuing the credit. Similarly when documents are presented under the L/C for negotiation, that negotiation if any, is based on the risk of the issuing entity, i.e. is corporate, not bank risk.
We would be grateful if the ICC Commission on Banking Technique and Practice would advise on the following:
1.      Is it acceptable practice for a bank to advise a corporate letter of credit in the same way as a bank-issued letter of credit without drawing attention to the ‘non-bank’ nature of the issuing entity? Does the Commission consider appropriate guidelines should be published? If so what will these say?
2.      What is the position if the corporate issuer were to apply for liquidation, bankruptcy, or protection from creditors (e.g. file for Chapter 11), and how different is the position to that of when a bank is unable to meet its obligations.
Analysis
The UCP reflects that state of practice, namely a situation where the issuer or other actor on a letter of credit is a bank. As a result, although there is no affirmative rule in the UCP prohibiting entities that are not banks from issuing, confirming, paying, negotiating, or advising letters of credit, its vocabulary (‘issuing bank’, ‘confirming bank’, etc.) assumes that these entities are banks.
This assumption is based on the recognition that there are three principal advantages to bank issuance and handling of letters: namely that banks have the operational expertise to handle issuance and presentation under letters of credit in a professional manner, that they have the tradition of independence from the underlying transaction which is the basis of the commercial reputation of the letter of credit, and that in virtually all countries banks are specially regulated with a view toward protecting those who rely on their undertakings.
These matters are of considerable importance to the integrity of the letter of credit as an instrument of commerce and to its dependability as an instrument of payment.
However, neither the Commission on Banking Technique and Practice nor the UCP can determine who is empowered to issue letters of credit under local law nor who may issue its undertakings subject to the UCP. That restriction on the issuance of letters of credit is a regulatory matter under local law should be obvious. In some countries, non-banks can issue letters of credit, although there may be limitations where they are used in consumer situations. In other countries, issuance is limited to financial institutions, but it is less clear that only banks constitute financial institutions. As a result, non-banks that are financial institutions, such as insurance companies, can issue letters of credit in some countries.
It may be less apparent that the UCP cannot itself limit the scope of its application. The UCP is a set of voluntary rules of practice. The rules can be modified or excluded by the undertaking that is issued subject to them as is recognized in UCP 500 article 1 (Application of UCP) (The provisions ‘are binding on all parties thereto, unless otherwise expressly stipulated in the credit.’). Issuance by a non-bank constitutes such a modification. Even if the UCP expressly prohibited issuance by a non-bank, this prohibition could be modified because the UCP is not a legislative act that can restrict the manner in which it can be applied.
Where a letter of credit is issued by a non-bank, the non-bank issuer should be held to the same obligation and standard of care as would a bank. In either case, the obligation is to pay against the presentation of documents that comply with the terms and conditions of the credit and that determination is to be made based solely on the documentary presentation and not on the status of reimbursement obligations or the underlying transaction, and local law should apply the same principles to an independent undertaking regardless of who makes it.
Having concluded that a credit can be issued subject to the UCP by a non-bank, however, does not mean that it is prudent for a beneficiary to accept such a credit. Issuance through an advising bank does mitigate the issue of whether the credit is authentic and presentation of documents to a bank does reduce some operational risks. There is, nonetheless, the risk of the creditworthiness of the issuer and country risk. These risks apply equally whether the issuer is or is not a bank and a beneficiary should always assess whether it is prepared to accept the credit and country risk associated with the issuer. If not, it should require confirmation by an entity with which it is comfortable.
There remains, however, an additional risk that may not be apparent to beneficiaries, namely the risk of neutrality of the issuer. This risk is somewhat more intangible but is very important. It is the risk that, when presented with documents, the issuer may be influenced by factors other than whether they comply on their face with the terms and conditions of the credit and may exercise certain discretionary judgments in examining documents against the beneficiary where it would not otherwise do so if external factors were different. While this risk is not confined to non-banks, the reputation of individual banks for integrity is well known in the letter of credit community and one which most banks that regularly engage in letter of credit practice work hard to maintain. It is less apparent that when faced with a poor credit decision, an insurance company will approach the problem in the same way as would a letter of credit banker rather than as an insurer, which may be inclined to reject all arguable claims and engage in litigation to settle any colourable dispute.
Similar concerns would apply to corporate issuers on behalf of themselves or affiliated companies, even though two-party letters of credit are recognized by UCP 500 article 2 (Meaning of credit) (‘and on the instructions of a customer (the 'Applicant') or on its own behalf’).
For these reasons, it is in the interest of banks generally to inform corporate letter of credit users of the advantages of having a bank's obligation, either as the issuer of a credit or as the confirmer of a credit issued by a non-bank. There would be no objection under standard international letter of credit practice to informing specifically the beneficiary of such a credit as to the nature of the issuer in addition to emphasizing that the advising bank assumes no liability, although in the absence of agreed standards such a decision should rest with the individual bank involved.
Of course, where the manner of issuance misleads the beneficiary into believing that the issuer is a bank, the advising bank may expose itself to liability. Ultimately, however, the decision as to whether or not to accept the risks associated with a non-bank issuance rests with the beneficiary.
Conclusion
  1. It does not ‘violate’ the UCP for a non-bank to issue a credit subject to the UCP even though such issuance is not contemplated in the rules. The UCP does not specifically provide for bank advice of non-bank issued letters of credit. Such an advice should accurately identify the issuer and indicate the advising bank's limited role. If the form of advice refers to the ‘issuer’ as ‘issuing bank’ or otherwise gives the impression that it is a bank, it is recommended that the advice affirmatively disclose the non-bank status of the issuer in order to correct any mistaken impression caused by such reference.
  2. The consequences of insolvency are a matter for local law, whether the insolvency is that of a bank or non-bank issuer. In either case, however, the beneficiary assumes the risk of the creditworthiness of the issuer unless it is offset by obtaining confirmation or credit insurance.


Rome, 30 0ctober 2002


Sunday, August 07, 2016

'Anywhere Banking' –The beginning (The origin of 'Core Banking' in India)

Introduction


By now, most of us – bankers and non-bankers – have become familiar with the term ‘Anywhere Banking’, also known as ‘core banking’ or ‘centralised banking solution’ (CBS). The terms have come to signify banking conveniences never before experienced in India during the days of manual banking operations. The all-encompassing change in banking practice has come as a boon to the banking community at large – the bankers as well as to those who make use of banks’ services. It’s now a routine, everyday part of our life, taken almost for granted. Yet few, if anyone, know precisely how this transition took place; where it all began. This is the story.


One can probably go so far as to say that ‘Anywhere Banking’ would not have been possible without the concurrent development in technology, especially the advent of V-Sat during the early 1990s. Prior to the advent of V-Sat, the most efficient means of communication included larger and costlier satellite dish having larger but non-focussed footprints. It did not offer the technology or the convenience required for the purpose of small or medium volume commercial applications, nor was it suitable for focussed, high quality, point to point communication at a reasonable cost.

The other (and far worse) option was setting up WAN (wide area network) using leased or dial-up land lines. It was actually a non-solution.

Reserve Bank of India: The game-changer

In January 1993 the Reserve Bank of India (RBI) came out with its guidelines for issuing licences to new commercial banks in the private sector. The move shook up the moribund banking industry. Since independence, for the first time in more than forty years, a positive announcement of such significance was made.

Prior to that, the banking industry was plagued with frequent and continuous resistance by the various workers’ unions to the introduction of automation in the banking industry. The greatest fear of these unions was job losses and redundancy. So they resisted or severely restricted the introduction of computers in banks. The computers were consequently named as ALPMs (automated ledger posting machines) and ELPMs (electronic ledger posting machines). The capacity of each computer was forcibly restricted to a ridiculously low level at a certain number of accounts (say 5,000 per machine). Interconnectivity and networking were not allowed; and, additional allowances were demanded for the computer operators. Automation remained a bargaining tool and a bone of contention between the RBI, the bank management and the staff unions. Mechanisation and automation were completely stalled. Services suffered in consequence.

In opening up the banking sector to new players, the RBI came out with a strategically brilliant move. While announcing the new licensing policy, it insisted that technology must be the main plank, the core engine and the primary driving force for operations planned by all new applicants. The RBI, very wisely and with great foresight, banked on the possibility that competition from new, technology-driven banks would force the nationalised banking sector and their uncompromising, rigid unions to see logic, realise the futility of their policies, and motivate them to change their collective, obstructionist mind-set. The RBI was eventually proved right in their approach, and how! We are all witness to the subsequent developments that swept the Indian banking industry since the opening up of the banking sector.

A journey of discovery

A handful of licences (actually ‘in-principle approvals’) were initially issued by the RBI in 1993-94. The thrust on technology was made a primary condition in those approvals. It must be remembered that not a single individual in India at that point in time had any experience in setting up commercial banks from scratch. Neither did anyone within the establishment of the RBI. For the officials within the RBI, as well as those who had received in-principle approvals for setting up commercial banks in India, it was going to be a challenge as well as a great learning process.

There were a multitude of issues that had to be addressed by all concerned. New issues surfaced almost every other day. It was a journey of discovery for the new banks as well as the RBI. Very frequently, the representatives of the applicant banks and those from the RBI (DBOD) had to sit together (mostly, informally) to find a way or via media in their attempt to resolve knotty issues, take a view on certain problems and move forward. The officials of the RBI were wonderful beyond compare in their cooperation, communication, reasonableness, understanding and support. In my years of interaction with them during the period (and after), I can vouch for these facts without any reservation whatsoever.

The primary concern of the new banks was, of course, technology. One of the reasons for such concern was that once chosen, the technology platform could not be changed very easily. Apart from the cost factor, the complicated and lengthy implementation process, the quality of operations and future success would depend very heavily on the initial choice.

Thus, though the RBI stipulation had opened up immense possibilities as well as opportunities for the banking sector – as also the information technology sector - it had simultaneously presented a few problems too. One of them was that not a single software vendor in India had any banking application software available that was geared for the next generation of banking. The then existing market situation was a product of union action, restriction and activism, resistance to all forms of automation, limited mechanisation and technology upgradation.

In consequence, the vendors in India offering application software during that period to the banking industry had restricted themselves to dedicated, low capacity software suitable only for stand-alone computers. Not a single vendor had anticipated the move by the RBI. None had any suitable application software ready or on the drawing board, because there was neither a market for it at the time nor was the possibility anticipated by any one. No research, development or investment was, therefore, directed at being prepared for such eventuality, either. The industry was caught totally unprepared by this development.

Resolving the technology conundrum

When the RBI came out with its guidelines for licensing new banks, I was with 20th Century Finance Corporation Ltd., based at its Raheja Centre head office at Nariman Point in Mumbai (Bombay). The file containing just the RBI guidelines landed on my table in January 1993. The bank project was added to my existing assignments.

The events that followed – from a slim, cardboard file right up to the new bank starting operations on 25 January 1995 – form a very interesting tale. That is a story to be told another day. At that juncture, a critical issue was identification of suitable application software that would meet our grand IT plans. ‘Grand’, because these plans were far ahead of their times, viz., the era of ALPMs and ELPMs. For me in particular, the project was very exciting indeed. It is not every day that one can give back to the industry everything that one acquired during one’s career as a banker, or put into practice one’s ideas and dreams for a better, more efficient banking system. Rarely, if ever, would an ordinary banker be asked to set up a commercial bank from the very inception, or be given a totally free hand to shape it in his own way, to his best judgment. Such trust was rare. Here was an opportunity to set up a bank from scratch, to create something totally different from what existed then; an opportunity to create something entirely new, to give shape to what one would have considered, at best, as wishful thinking. A rare opportunity of such magnitude brooked no compromise in selecting the best considered necessary for a whole new bank.

The software was going to be the core and the heart of the bank. On that point, there was no doubt. In selecting the software, one had to make sure that it would meet the requirement of the future at least for several years to come, as well as provide a platform for growth. As a banker I had experienced difficulties and bottlenecks in transaction management, in operations, in communication, in managing and collating information, in accounting, in reconciling thousands of outstanding entries, and in a host of other areas. The assignment, therefore, was a dream-come-true, a great opportunity for me to make sure that the new bank did not suffer from these constraints. Going one step further, I tried to ensure that the bank could offer much more than was ever before offered by the industry to its internal and external customers. As stated earlier, the selection of the right software platform, its capabilities and potentialities became the key.

It was mentioned towards the beginning of this article that connectivity was a critical issue. Core banking required an efficient communication system. Efficient, commercially viable alternatives to land lines were not available till then. V-Sat had just then begun to be discussed. We were not sure when exactly the technology was going to be made commercially available. However, the important thing was that V-Sat was on the horizon, and appeared to fit our requirements exactly. Hence, we decided to make our plans on the assumption that V-Sat technology would be available sooner rather than later, hopefully by the time the bank was ready to start operation.

I had mentioned earlier that, like everyone else, the large IT houses too had been caught unprepared for the sudden opening up of the banking sector. The best they could offer was stand-alone application packages customised for ALPMs and ELPMs. In response to our new demands they offered to link-up and network the stand-alone machines to help achieve our goals. Unfortunately, the offer was far removed from our idea of a centralised solution. We were looking for a hub-and-spoke arrangement whereby the branches and smaller offices would be networked and connected to the core, reducing cost but improving operation.

There were other reasons for insisting on this approach. One of them was technology management and upgradation. In our opinion, it was far easier to manage and maintain a core application rather than go around to all the offices for each and every modification or change in the system. For a large network of branches spread all over a country like India, issues of time, cost and operational constraints would have made the approach inefficient, impractical and unviable.

Core banking: The concept

Another critical issue revolved around information management. As bankers, most of us knew to our cost the amount of time that had to be set aside on a daily basis for creation of statements, reports and statistical returns. At head office, it was the job of major departments to call for and collate data. At branches, it was a full-time job of a section devoted simply to generating reports and returns for the controlling offices. Most of the time, the same sets of figures had to be re-arranged and presented in different formats for different departments through a large number of reports. Add to that the sudden but frequent call for unstructured, ad-hoc reports and statements from the controlling offices, and one can imagine the chaos that was routine in the life of a banker.

Timely, accurate and complete information was essential for running a bank efficiently. Almost every department and function, including treasury and money market operations, credit, risk management, customer profiling, marketing, planning and development, foreign exchange, needed management information to function. Taking the right decision depended on having the right information immediately, as and when required, properly collated and arranged in a structured format, without waiting for a collating process involving weeks if not months.

Centralised solution gave us a wonderful opportunity to solve the problem at one go. This meant that every bit of information would be available live, on-line, real time, always up-to-date and accurate, literally at the tip of your fingers. Linking up of stand-alone machines, as proposed by the vendors, did not meet that requirement. Hence, such a proposal had to be rejected outright.

Other benefits expected to be derived out of switching from the manual or partially mechanised to a fully automated, centralised environment included the following:
  • Doing way with inter-branch reconciliation, a huge problem till then.
  • Reduction in processing time; significant reduction in transaction cost.
  • Reduction in back-office work load, resulting in better allocation of manpower and resources, extension of business hours for customers.
  • Improvement in the system of remittances and fund transfers.
  • Improvement in cash management, in better management of collection accounts and fund management on behalf of large corporate houses – including such mega accounts like Indian Oil.
  • Implementation of CRM, exposure and risk management; not possible till then in a manual environment.
  • Enabling the customers to execute their transactions at any of the bank’s offices, irrespective of their geographical location. (The birth of ‘Anywhere Banking’.)
  • Setting up ATMs.
A core banking system would also go to resolve certain operational problems. Setting up and managing branches were expected to be faster, easier and at a lower cost, we argued. Because, all that would be required to set up a new branch were suitable premises, furniture, and a few computers. Link the computers through a server to a V-SAT terminal placed on top of the building, and you were in business. The arrangement also helped to offer all products at all outlets, irrespective of their distance from the controlling office or the bank’s head office.

The software solution

So we dreamt on. The reality at the ground level was, unfortunately, quite different. As I had said earlier, the technology vendors did not have any product ready to meet our requirement. Large, reputed houses like Wipro and Infosys offered to take up development of solutions, promising to tailor them to our needs. The problem was that we did not have at our disposal the lead time required to allow for full development of the required application (including the unavoidable time for removal of glitches, bugs, for field tests, parallel run followed by live run etc.). Neither did we have the resources for the purpose. There was no one to spare who could be assigned, full-time, at a stretch over quite a long time span, committed to product development on such a large scale. At the back of our mind, there was also the possibility (and the risk) that any delay in the availability, or the lack of, a fully developed solution could hold up the very launch of the bank itself.

Top brasses from leading software houses visited my 6’X6’ office on the 12th. floor of Raheja Centre. Intensive brain storming with the leading lights of the IT industry took place almost daily. For, they realised that this was a turning point in banking software technology development. An opportunity that could hardly be missed. Unfortunately, our yet-to-be born bank neither had the time, nor the resources to commit to any of these proposals or plans. What we required was a ready solution in quick time. Because, creating a whole new bank from nothing involved working on a huge number of other things too, while the search for the core, the engine, was on.

In due course of time we found what we were looking for. It was tweaked to meet our requirements and implemented across branches. In due course, other frontline software houses completely abandoned their earlier configurations that mainly attempted the link-up of individual, stand-alone computers to offer so-called centralised banking solutions. They adopted the concept and the framework of ‘Anywhere Banking’ that Centurion Bank[1] had devised and created, and successfully developed their own branded products. Some of them are now industry standards, used widely in India and overseas.

Conclusion

From the layman’s point of view, the term ‘Anywhere Banking’ conveys only a small part of what we wanted to achieve through our innovations while setting up a new bank. But the name stuck. ‘Anywhere Banking’ now represents the basic concept created for the very first time through ‘core banking’ or ‘centralised banking solutions’.

Centurion Bank Limited opened its doors on schedule on 25th. January 1995, with a glittering launch party at Goa the previous evening (where its registered office was located). An aircraft was chartered to ferry the guests from Bombay to attend the party. Another launch party was held at the Taj Hotel, Bombay on the eve of the launch day, especially for those who could not attend the launch party at Goa.

The term ‘core banking system (CBS) has gradually developed to now become a generic term for centralised banking solutions. I feel privileged to have been associated with a unique project, a game-changing concept that forever altered the face of the Indian banking industry. 
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[1] Centurion Bank is no more. Initially, it transformed itself as the Centurion Bank of Punjab Limited. Later, HDFC Bank took it over completely, merged the bank with itself, and the bank’s name was obliterated for ever.

Monday, June 06, 2016

How to set up a new bank

On 30 March 2016 the Economic Times (Kolkata edition) published an article by Mr. Atmadip Ray and Ms. Saloni Shukla on Bandhan Bank and IDFC Bank, the two new kids of banking on the block. At one place in the article I came across these words, "Few in the country barring Rana Kapoor of YES Bank has had the experience of creating a bank from scratch."

This surprised me. I did not expect a venerable daily like the ET to err in such a fashion. To set the record straight, on 11 April 2016 I wrote to the ET pointing out that I was one of those who were involved in setting up one of the first few commercial banks. I was employed with 20th Century Finance Corporation Limited (TCFC) in Bombay as Vice President when, in January 1994, the first 'Guideline for setting up commercial banks in the private sector" was released by the Reserve Bank of India. On behalf the organisation, I was given sole responsibility (while holding charges of other departments as a VP) for the project to set up a commercial bank.

Mr. Dev Ahuja, chairman of TCFC, had always been keen on banking business. He jumped at the opportunity when the RBI announced its new licensing policy. TCFC was to be the main promoter (ADB and IFC, Washington came on board later). Mr. V. S. Srinivasan, Vice Chairman, TCFC, a brilliant mind and a genius at project management, steered the project from start to finish. (I learned a lot from him). The bank was named the Centurion Bank Ltd.  Yours truly picked the name, was a signatory to its Memorandum and Article of Association, and also selected its HQ. How that came about is another story!

Mr. D. R. Mehta, Deputy Governor, RBI (now retired) was in charge as the head of DBOD. Dr. C. Rangarajan (now in New Delhi) was the RBI Governor.

The new banks were being set up at a time when no one – including those in the RBI – had any experience about setting up a bank from scratch. How the RBI and ourselves learned from each other as we went along, what we went through for setting up the first such banks in India – are tales that were unique, never to be repeated, and possibly will remain untold for ever. I have with me some of the old files, several on floppy disks in Wordstar and Lotus 1-2-3 (know what these are?) that would be lost along with me. Would any archive want to have them? I don't know.

My entire resource consisted of a desktop computer. All the files were on that computer, along with those related to my job at TCFC. No manpower support was given. Back then, I had no idea about the necessity of taking back-ups. I shudder to think what would have happened if that computer had crashed. Probably, Centurion Bank would never have been born. And most likely, I would have been out of a job!

Business Standard did a feature in "Money Manager" on a few of us – including Ms. Chanda Kochar and myself - who were leading the operations on behalf of our respective organisations at that time. (Our photographs were published in the supplement; I still have a copy). A bright young journalist named Pankaj Aher from Business Standard (now Chief Executive Officer at Cogencis Information Services Ltd.) interviewed me at my residence on a Sunday afternoon In Bombay, and wrote the feature. Sri R. Srinivasan, an eminent journalist (now Editor - HBL) was in touch, closely tracking developments. Dr. A. C. Shah (may his soul rest in peace), former chairman of Bank of Baroda, was in charge of setting up the bank on behalf of the UTI. A thorough gentleman, he became a mentor and a friend in days to follow.

Together, we struggled to create a five-year spreadsheet template for a brand new commercial bank. Identifying and selecting the essential parameters, creating a framework for sensitivity analysis, were serious problems that had to be resolved in double quick time. Unlike today, information was hard to come by then. While going about the business of creating the new banks, I realised that no one had ever drafted a memorandum or an article of association for a new commercial bank in the private sector. There was no template, no precedence to follow. Top legal firms in Bombay could not help, nor could the RBI. “Write whatever you want. But don’t bring it to us. If something you include is against the Banking Regulations Act, it will be invalid anyway!” they told me. There were many such instances of ‘creative banking’.

It is definitely not common knowledge that the limit (cap) on the voting rights was enhanced from 1% to 10% only at our (20th Century's) insistence. We fought hard for it, reasoning that roping in other financial partners and financial closure could otherwise have been very difficult, if not impossible. It may also not be common knowledge that along the way, I created and implemented, for the very first time in India, what everyone today knows as the 'centralised banking system' or 'core banking solution' (CBS). (That story too would appear here later.)

Too many 'i's were to be dotted, too many 't's were to be crossed. The problem was, no one had any experience to fall back on, no reference to go by – no one had set up a bank like this before! The RBI wanted the new generation banks to be technology driven. But no one had the foggiest idea what the software platform was to be. Almost every step that we took felt like being for the first time ever. As a banker, I was extremely fortunate to be at the right place at the right time to have this unique opportunity to set up a bank – an opportunity that few bankers could ever have dreamt of having in his/her entire lifetime.

When the regulatory doors were widened further years later, when a few more licences were issued by the RBI, the banking industry in India already had a well-defined, tried and tested road map in place for setting up commercial banks in the private sector. When we had stared, we surely did not. We created the road map, did all the pioneering work, working side by side with the officials at the RBI. It was a fantastic experience, a whole new learning process – sadly, not of much use today.

Centurion Bank is no more; it's long gone. It went through two mergers, the second and the last being with HDFC Bank which took over the bank entirely. However, when the history of (post liberalisation) Indian banking is written, I hope that these facts are not overlooked or entirely forgotten, but find their rightful place at least by way of a small footnote on the pages of the history of Indian banking.

[E&OE. This article is also available at LinkedIn: https://www.linkedin.com/pulse/how-set-up-new-bank-rupnarayan-bose?trk=pulse_spock-articles] 

Wednesday, May 11, 2016

Developing Human Resources, the State Bank Way


Let me begin with a small correction. A more appropriate title for this article should have been HRD at SBI-The way it was. How far things have changed since I left the group in 1995, I do not know. But, to a large measure, the credit for what I have been able to achieve professionally as a banker or otherwise, goes to what the bank inculcated in us. So bear with me, and indulge me a little, while I go down the memory lane to highlight a few of them.

The annual budget exercise
Budget settlement was a lengthy exercise – comparable to the Union Budget, perhaps! A document called the Policy Guidelines used to arrive at the branches around September-October. It outlined the macro issue, including the 5-Year Plan, the most recent Union Budget and its implications. The document outlined issues that could have a direct bearing on the banking and the financial sectors.

Taking off from there, the Policy Guidelines document gave a break up of the goals – in terms of the business segments – that the bank had set for itself for the next financial year. Our job at the branches was to prepare a draft budget proposal keeping the overall policy guidelines in view. The operating environment of the respective branches was factored in. Business targets were quantified. Support required from the bank, say, in terms of capital expenditure, staff and training requirements was also included. An important segment of the budget proposals was the assumptions that we made for our next year’s projections. 

These too had to be clearly outlined and defended, if need be.
The exercise was not limited to the branch head alone. All members of staff were expected to contribute. They had to buy in to the budget projections. Therefore, long meetings were held before a branch’s draft budget was finally signed and sent off. At the planning department it was consolidated and evaluated against a host of benchmarks.

Thereafter, the controlling authority (CA) for the branch/region/zone visited the offices under his control to finalise the budget – with every branch, separately, individually, at the branch itself. Never was the branch head summoned to the regional or the zonal office to finalise and settle the budget with his boss. The CA invariably carried with him his own sets of numbers – result of his interaction with his controlling authority, who in turn well, you get the picture! It was a detailed exercise, with good reasons. Note that all the individual budget projections from all the units had to finally add up to, if not exceed, the overall targets set for the bank by the bank’s board, as outlined in the Annual Policy Document.

It was action station, next. The tug of war between the CA and the branch head, often aided by his lieutenants, could last for hours. It could be rough and very acrimonious too. I recall an incident at our bank’s main branch (it was very big) at Mysore in 1975. It was headed by an assistant general manager. His CA was the general manager, no small fry by any standard even in those days. We, the minions, were outside, chatting and waiting, while heated discussions went on inside the AGM’s cabin. It was getting close to midnight. We could hear the voices getting louder. All of a sudden the debate reached a crescendo, ending abruptly with a very loud thud. We later learned that in sheer anger and frustration our AGM had thrown a huge file straight at his own GM!

Why so? It’s because the CA could not leave without obtaining the branch head’s signature on the budget proposal, which had to be mutually agreed. The numbers (i.e. the targets) could not be imposed. Till agreement was reached, till one of the parties convinced the other, discussions had to go on. This was the only opportunity that the branch had to get all that it could negotiate from its CA. Once signed off, the targets would get frozen (for all practical purposes) for the next 12 months. If the branch failed to meet the targets set, it would be accountable and must justify the variations to his CA. An analysis would be made even if the branch did the opposite, i.e. exceeded the target by miles. (Mid term reviews were undertaken to revise the targets, but only under exceptional circumstances.)

Staff training
The overall requirement of the branch for the training of staff, like other issues, was also discussed and agreed upon between the controlling authority and the branch head during the budget exercise. The training centres, on their turn, worked out their respective annual plans. Later, they called upon the braches to depute staff according to their programme schedules. The plans, however, were not carved in stone. Staff could be deputed to the bank’s training centres even at short notice, if need be.

If someone was nominated, he or she’d better go. There was no other option. The branch had to release the staff for training. No excuse, genuine or otherwise – including severe staff shortage – was acceptable. Same applied to the staff concerned. The message from the top was very clear:
(a)   A well trained staff was an asset to the organisation.
(b)   Every staff had the right to training. Nothing should stand in its way.
(c)   The programmes were planned for the staff’s development and the bank’s greater benefit. To take full advantage of these programmes, it was the duty of the branch to ensure that the staff attended the programme without fail.
(d)   The bank could not afford to waste (training) resources.
The bottom line: the staff must be allowed to go; as for the staff member, he or she must go!

Job rotation
Every office was required to rotate the jobs of all members of staff every six months. If anyone was to continue at the same desk for another six months, the reasons for doing so had to be recorded, and permission sought from the controlling authority. Only one extension was allowed; that too, only under unavoidable circumstances. At the end of the next block of six months, he had to be shifted, whatever the exigencies. (The branch knew well in advance what to expect, didn’t it?)
The reasons for this policy being strictly enforced were as follows:
(a)   No department could be an exclusive domain of a privileged/select few. Every member of staff had the right to be exposed to and learn all types of work.
(b)   Their career advancement could suffer otherwise.
(c)   Nobody had the right to become a specialist at the cost of the others.
(d)   If the staff were not rotated, bench strength would never develop. In the absence of a particular staff, smooth operation of a branch office could be compromised. This was not desirable at all.
(e)   The branch would not otherwise be ready to handle sudden rush, or other exigencies like leave or transfer.
(f)     Planning of annual leave would not be possible.
(g)   Rotation of duties prevents fraud and development of vested interest.

The importance of the above approach can hardly be overstated.

Posting and transfer
So what if you had been posted earlier at the bank’s office in Germany, Tokyo or the US! It did not matter if you were in charge of glamour portfolios like M & A, investment banking or were closing exotic international deals while abroad. On your return to India, you could be posted to offices in rural or semi-urban areas, or asked to handle something diametrically opposite – like agricultural or SMSE financing. One had no choice in that matter. (Many called the personnel department ‘sadist’.) It had to be the bank’s way or the highway.
The message was clear: Just because the bank had selected you for a foreign posting, the bank was not obliged to continue to offer you lucrative or glamour postings. A State Banker was supposed to be an all rounder, not a banker with blinkers on – pointing only in one direction.
Similarly, staff with exposure to rural or semi-urban operations could be posted direct to, for example, an international division in a metro city. “You too can”, was the clear message to one and all. The bank was an “equal opportunity employer” in the truest sense of the term. The results showed!

Taking responsibility
Every recommendation for loans and advances to clients had to compulsorily originate from the respective operating/field office (viz., a branch, big or small) where the client maintainted his account. Every such proposal had to be finally signed off by the branch head before it could be forwarded to the higher authorities for consideration. If the branch head was not convinced or satisfied about its viability or did not recommend it for sanction, no power on earth – inside the bank or outside it – had the authority to bypass him/her or proceed with granting that advance directly to any potential borrower.
This approach had its own reasons. First, it made the one recommending the advance responsible for its viability and continued well-being. Second, it sent a clear message to the borrower that – even if the bank’s chairman or a board member were his bosom friend – no approval would be forthcoming without the branch’s approval. Day to day management of the borrower’s account could best be monitored by the branch, at the ground level. It was clearly understood that the branch concerned, being closest to the action, would be the one to always have its finger on the pulse, would know the borrower and its operations far better than offices at the zonal or head office level ever could.

Grooming to be an officer
Probationary officers (PO) had to go through the grind – spread over a two year period – allowing exposure to a wide range of line and staff functions. My first branch training started with sorting out inward mail, entering them in the peon delivery book, and handing the mail over to the concerned department heads against their acknowledgement. At that ‘currency chest branch’ (branch handling government accounts, and holding cash on behalf of the Reserve Bank of India), I often joined the cashiers to help in counting several crores in cash by hand. (There was no note counting machine those days.) All trainees were also required to sit at the counters and do everything that the counter-staff did during their working hours.
The grooming process included being an understudy, officiating on leave vacancies, managing small to medium sized departments, similar branches in rural, semi-urban and urban areas as we kept developing our operational and managerial skill levels and moved up the ladder, growing in confidence all the while.
The manual system of accounts and book-keeping helped us to learn the system and procedures inside out. We learned the theory and practice of banking far better than they probably do nowadays from the computer interface. When the computers do not work, all that we are told is that ‘the link is down’, hence nothing can be done. “How about continuing the work manually for the time being, son? Do you at all know how to?” I often feel like asking, knowing it’s fruitless to do so.

Treating former employees
One of the bank’s greatest virtues was the culture of sincere, deep respect towards its former employees. I have seen many organisations treat their former employees, or employees about to leave, like ex-convicts. Where he was the man in charge yesterday, is a ‘persona non grata’ today. When an employee serves notice to leave, his entire support system is severed. Access to various areas of office, as also to his own office’s computers and data base, are curtailed. He becomes a virtual pariah, ‘an enemy of the state’ so to speak. The organisation is keen to get rid of him as fast as possible (lest he…!)
On his or her last day in office, the employee is allowed to pack his or her own stuff, but only under strict supervision. If he later visits his old office, he is permitted access only up to the reception area or the meeting room, no further. Fraternising with former employees is not encouraged.

Compare this with how State Bank treats its former employees. For myself, even after I had left I was never treated as an outsider, rather a brand ambassador for the bank. The handing over and taking over of charge was quite a ceremony, worth emulating elsewhere. (At one branch where I was the branch manager, I was given farewell twice. Once, when I left. The second time, when the staff who were on vacation during the summer holidays reported back for duty only to learn that I had resigned and had left.) 

Whenever I drop in at any of my former branches, no one treats me with suspicion or with fear of being seen together. Instead, I am shown all the respect a former officer and a loyal employee of the bank deserves. I am allowed free access everywhere, without question. Former colleagues offer me tea at every desk. I have to stop everywhere, greet them individually, shake hands with all of them in turn. That is expected. They were still your friends. Every former employee was made to feel welcome at all times. It made us feel proud of the organisation which we had once served. It still does.

Career advancement
A few words about career opportunities should be in order. Graduates from the top tier management schools do not consider commercial banking as the career of choice. I can only say that commercial banking was the best career choice I had ever made. (When I joined, people used to prefer being a PO with State Bank over IAS - till Pillai Committee spoiled it all.) There is always plenty of room at the top for professionals of every shade, qualification, inclination or experience, from an engineer to an agricultural graduate, a marketing guy to a faculty, an IT expert to an investment banker. State Bank offered a very satisfying career opportunity to one and all. I am sure it still does.

Trust me, I am a banker

My only regret is that, since I left the bank, no opportunity has come my way to give back to the institution that gave me so much. 

For, the lessons that I learnt at the bank continue to be priceless. I truly realised their value only after I had left the bank and went out into the big wide world. I always felt confident that I was well-equipped to take up any responsibility at any bank in any part of the world. The exposure that the State Bank Group gave me stood me in very good stead all through my professional career, and still does – right up to this day. 

More importantly, the value systems that were ingrained in me are still with me, guiding my actions all the while. I am proud to have been a (State) banker, and would always remain so.

Monday, April 25, 2016

What’s draft got to do with it?[1]

Introduction
The bill of exchange (draft) has always been an integral part of documentary credits since inception. That situation could change in the near future. Voices opposed to this long partnership are getting stronger. Even though there is no official word about the next revision of the UCP, there is a rising demand for the next version to rid itself of its reliance on drafts. A sharp dividing line has developed between those who believe in the dictum “If it ain’t broke, don’t fix it”, and those who find drafts totally irrelevant – rather, more of a big nuisance – as far as documentary credits are concerned.

In two separate articles[3]  published earlier this year, experienced trade specialists Peter Sproston and Bob Ronai called on the LC community to “stop following the tradition of using drafts dating back to the 19th Century and eliminate drafts from the next revision of the rules.” In his blog post of February 2015, Kim Sindberg echoed similar sentiments, “…references to drafts and negotiation should be got rid of once and for all.”

Dependence on drafts
Documentary credits rely heavily (contd...)


[This article is continued in the book 'Beyond Trade Finance', published on 13-Apr-2021 by Notion Press, and available at https://notionpress.com/read/beyond-trade-finance or at https://www.amazon.in/dp/1638508666]





[1] First published in LCM-TSU, Jan-March 2016.
[2]The author is trainer, faculty and author of books and articles on international trade. Home page: http://www.rnbose.com.
[3] Drafts: In or out of UCP 700? Documentary Credit World, Page 1, Vol.19, Number 1, issue of January 2015
[4] Drafts: in or out of ucp700? Documentary Credit World, Page 1, Vol.19, No 1, January 2015
[5] Refer to Newman Industries Ltd v Indo-British Industries, [1956] 2 Lloyd’s rep 219; see also W.J. Alan & Co Ltd v El Nasr Export and Import Co [1972] 2 Q.B. 189, 209-212, 221. (Peter Sproston, DCW, Jan ‘15)
[6] Documentary Credit World, Page 20, Vol.19, No 1, January 2015,
[7] Documentary Credit World, Page 1, Vol.19, No 1, January 2015.
[8] Bills of Exchange Act, UK, Section 45(2): Where the bill is payable on demand, then, subject to the provisions of this Act, presentment must be made within a reasonable time after its issue in order to render the drawer liable, and within a reasonable time after its indorsement, in order to render the indorser liable.
[9] See Negotiation and the law of contracts, Rupnarayan Bose, DC Insight, Vol. 16, No. 2, April-June 2010; and Re-defining Negotiation, Rupnarayan Bose, LC Monitor-Trade Services Update, Vol. 11, Issue 4, July–August 2009.