Summary of Discussion

This discussion has taken place at the office of BRAC Bank on 28 th May. According to Mr
Ahmed the benefits of IT in banks are manifold. IT leads to better and faster decision
making with more efficiency and considerable cost reduction. The benefits can be broken
down as follows:
1. Greater effective control over branch management: Different management levels in
the banks have discretionary limits for credit authorization; generally managers of a
branch have the discretionary limit of a small amount while the larger loans are
approve by credit committees or the board of directors. The branch managers often
violate the credit authorization limits they are allowed; sometimes, the managers will
allow customers to draw credit over the amount authorized by the credit committee or
the board of directors. In the absence of suitable computer systems, top management
cannot stop this before the unauthorized limits are allowed, and when they eventually
discover this, it is difficult to do anything as the customer has already taken the credit.
These unauthorized credits often turn into default loans.
2. Profitable use of financial resources: At present, it is difficult to manage liquidity in
the most efficient manner. It is impossible to report the availability of cash in different
branches of a bank in a timely manner without a good computer system. As a result,
many branches of a bank end up having excess cash in its vaults while another branch
has shortage of cash. Also, investing the excess cash become difficult and there is a
loss of revenue. Banks using IT enjoy competitive edge in this regard.
3. Cost control: IT provides details of expenses incurred in a timely manner and helps
decision-makers manage costs effectively.
4. Motivation: Banking is a service-oriented business. Modern banks should be
knowledge based, otherwise it will not survive in the ever-changing world. So, people
inside the bank should know clearly about the corporate goals and visions, different
products that the bank offers and how to make the best use of their time. IT makes it
possible to track the performances of individual officers and recognize and reward
them effectively. Performance of loan portfolios created by different officers of the
bank can be tracked. Officers can be rewarded where the loan portfolios are profitable
and recovery is good; on the other hand, where the loan portfolios are not profitable
and recovery is not good, the officers can be penalized. This would bring about
responsible banking and would strongly motivate bankers to give profitable loans and
make sure that defaults are kept to a minimum.
5. Freed up resources: At present a branch manager has to sign a lot of vouchers and
papers. IT can free him from this type of routine work so that he can concentrate more
on customer service.
6. Objective analysis: Computerized system provides the scope of more objective
analysis of credit proposals. Built in or preset models help to determine the risk factors
by considering a lot of factors. The processing time will also reduce significantly. At
present the proposals are submitted to the branch management. There they process it
and forward it the credit division through proper channel. The decision-makers often
find that the loan file lacks necessary papers. So they ask for queries to the branch. File
movement takes enormous time. Loan proposals, as a result, need 6 to 9 months for
authorization if not longer from their initiation. In the meantime, the bank loses the
profit it could earn over this period and the borrower loses the market potentials. If the
credit authorization system is computerized, information required could be obtained
and processed in a timely manner. Credit information can be forwarded within seconds
and the whole process can be completed in a short time.
7. Report Generation: Banks need to prepare a lot of reports. For loans over 1 crore,
banks have to prepare statutory reports for Bangladesh Bank. Furthermore, CIB of
Bangladesh Bank may ask for special report in the specified format. In most of the
banks, especially larger ones, a large number of people remain always busy in finding
the information, processing them and preparing the reports every day. Whereas, in an
IT integrated bank, the installed program automatically prepares the statutory reports
at the end of the period. It is a major benefit of having IT in the bank. A research in
Pubali Bank showed that if IT is installed, the cost of installation could be recovered in
a single year from just savings realized in processing statutory and other reports.
8. Legal proceedings: Banks have to appear in courts for legal proceedings against the
default loans. This problem is more acute for larger banks. Some of the larger banks
have several thousand cases pending in different courts and without appropriate
Management Information Services, it is impossible to properly track the default loan
cases.
A good loan does not default. Lack of objective analysis gives birth to bad decisions and
burden of bad debt for the banking sector. IT can reduce that significantly. Appropriate IT
can provide infuse discipline into the banking system which is now essential for survival
and future growth of the banking industry in Bangladesh.