Over the last fifteen years, as a sequel to the reforms that swept India’s financial sector, public sector banks (PSBs) were given greater autonomy in matters relating to business strategy and internal restructuring.
This opened the floodgates to the practice of engaging global consultants – ranging from prominent individuals to global multinational companies – who would advise the banks on strategies and organisational transformation.
Considerable amount of public money has been, and is being, spent on hiring such consultants. And yet, there is very little study on the end-results. Have such consultancies helped the banks? Have they brought tangible returns? In instances where it didn’t work out, did the bank and the majority stakeholder, the government, carry out a cost-benefit analysis prior to engaging the consultant?
And above all, how transparent are the PSBs in sharing information on the practice of hiring external consultants?
A study undertaken by this writer by collecting information under the provisions of Right to Information Act, 2005 (RTI) sheds some light on this matter. There are three takeaways. First, there is considerable amount of opaqueness surrounding the appointments, especially with regard to RTI queries. Secondly, there is little evidence to prove that such appointments have helped the banks in the long run. And lastly, there are important lessons to be learnt from the whole process.
The surrounding opaqueness
How did the PSBs respond to the request for information on consultants called for under RTI? The process itself is instructive. Seventeen banks, including most of the smaller ones, were selected. Their names are given in the below table.
Table 1: Names of PSBs to whom RTI application was sent
| Serial no | Name of the Bank | Headquarters |
| 1 | Allahabad Bank | Kolkata |
| 2 | Andhra Bank | Hyderabad |
| 3 | Bank of Baroda (BoB) | Mumbai |
| 4 | Bank of India (BoI) | Mumbai |
| 5 | Bank of Maharashtra (BoM) | Pune |
| 6 | Canara Bank | Bengaluru |
| 7 | Central Bank of India (CBI) | Mumbai |
| 8 | Corporation Bank (Corp.Bank) | Mangaluru |
| 9 | Dena Bank | Mumbai |
| 10 | Indian Bank | Chennai |
| 11 | Indian Overseas Bank (IOB) | Chennai |
| 12 | Oriental Bank of Commerce (OBC) | Delhi |
| 13 | Punjab National Bank (PNB) | Delhi |
| 14 | Syndicate Bank (Synd.Bank) | Manipal |
| 15 | UCO Bank | Kolkata |
| 16 | Union Bank of India (UBI) | Mumbai |
| 17 | Vijaya Bank | Bengaluru |
I had asked for information, among others, about the name/s of consultants, the terms of reference of their appointment, the consulting fee and other expenses reimbursed by the bank, a copy of the report and the action taken by the bank during a ten-year period between 2006 and 2016.
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One PSB shared the entire information I had asked for; another replied that they had not engaged any consultant/s during the period; four banks gave sketchy information; and 11 banks rejected the applications in the first instance.
The common reasons furnished by them are as follows:
1) The information called for pertains to a third party;
2) It pertains to business relationship between the bank and the consultants and hence can’t be parted with;
3) The information asked for is vague and not specific;
4) The information is voluminous and if the Public Information Officer (PIO) under RTI were to collect it, it would result in disproportionate diversion of bank’s resources;
5) The information is not available or that it is spread out between various departments of the bank and it is not possible for the PIO to collect it.
One PIO quoted a non-existent section of RTI to reject the application. Another PIO did not respond to the application for 60 days although the RTI Act makes it mandatory to reply within 30 days. When I complained to the internal appellate authority (IAA), the PIO sent me a response with a date preceding the date of receipt of my complaint by the IAA. The PIO of another bank said the period of 16 years mentioned in my application was too long, although I had restricted my study period to 10 years from 2006 to 2016. One more PIO replied that “the consolidated information is not maintained by the Bank and hence unable to provide the data.”
As the reasons given by the individual banks did not stand to legal scrutiny, I filed appeals to the IAAs of the banks. I gave a clarification at the appeal stage that I would be satisfied with the information about consultants appointed at the level of the Head/Corporate Office of the bank.
The reactions of the banks at the appeal stage were also standard. The appellate authorities disposed of the appeals without replying to the specific grounds of my appeal, with cryptic orders saying ‘the appeal is perused’, or ‘I have gone through the appeal’ and asserting that there was no reason to overturn the decision of the PIO. Two banks, however, provided partial information at the stage of disposal of the appeals.
To take it to a logical conclusion, I had to file a second appeal to Central Information Commission (CIC), spending a lot of man-hours and money, in drafting the petition, copying documents and sending the appeal in four sets. The appeals were all on common grounds. (How the CIC disposed of my appeal can be another essay by itself.)
So much about the application of mind or lack of it on the part of authorities in the PSBs in responding to queries under RTI Act. Incidentally, home minister Rajnath Singh had said in November 2016, addressing a convention of the CIC, that “officials should reply to every RTI application irrespective of what kind of information has been sought by the applicant.”
It is also pertinent to record here that several banks have over the years gone public through press statements about their decisions to engage consultants on diverse matters.
In 2004, Corporation Bank had hired Boston Consulting Group to advise it on business process re-engineering (BPR), to improve customer convenience and to speed up decision-making within the bank; the terms of reference were released to the press by the CEO of the Bank.
- The PSBs, which were too keen to share information with the media, were, however, unwilling to share it when called for under the RTI Act, as evidenced from their responses.
In 2009, BoB had engaged McKinsey & Company for BPR. In 2013 Syndicate Bank had appointed Ernst and Young for restructuring its core banking operations. In the same year, Dena Bank had floated tenders for appointing consultants to advise the Bank on sale of its stressed assets.
In 2014, several newspapers had reported that banks were hiring consultants to do corporate investigations of non-performing loans. These are only samples about the publicity the PSBS would give about their decisions to hire consultants.
One may also recall that in the first decade of this century, the PSBs had a fancy for hiring consultants to change their logos. Canara Bank, UBI and BoB are three instances. They had gone to the press to announce the names of consultants engaged for this work.
The PSBs, which were too keen to share the information with the media, were, however, unwilling to share it when called for under the RTI Act, as evidenced from their responses.
While banks as autonomous corporations are at liberty to evolve their own strategy for business development, as public institutions they cannot shy away from giving information on matters of public importance. It becomes all the more important when we observe that despite hiring external consultants to advise the banks on business strategies and organisational transformation, it is the PSBs that in recent years have been under considerable stress.
The role of external consultants
A scrutiny of the information provided by the PSBs and the earlier press reports about the assignments given by a few banks is instructive. There are a number of issues that could be relevant in a larger context. For the purpose of this study I will limit my comments on the tasks given to the consultants and examine if the effort has helped the banks.
The tasks assigned to the consultants: PNB hired the services of Boston Consulting Group (BCG) in early 2012. BCG was asked to “undertake Organisation Transformation Exercise in the Bank.” It took about two-and-a-half years to complete the work and cost the bank about Rs 27 crore as professional fees. (On a side note, none of this prevented the Nirav Modi scam, which by then had been in the works for a year or so).
BoI appointed Ernst & Young Pvt Ltd in 2013 and KPMG in 2015. CBI hired Deloitte Haskins & Sells in 2010.
OBC had appointed KPMG in 2014/2016 to study risk processes and systems and implement Risk Management Solutions etc for a consultancy fee of about Rs.2.87 crores.
BoB had hired many agencies like Mckinsey & Co. (2009 and 2016), Ernst & Young (2009, 2014, 2015), Deloitte Touche Tohmatsu India Pvt Ltd (2011 and 2015), BCG (2011) and KPMG (2014). IOB had engaged the services of, among others, KPMG (2010 and 2013), Gartner Ireland Ltd (2013) and Ernst & Young (2013). The total fees paid for these three agencies was Rs 3.40 crore.
Corporation Bank had appointed, in 2012, McKinsey & Company for a fee of Rs 15.3 crore.
IOB tasked KPMG to “make a detailed study of the bank vis-a-vis the peers and formulate workable strategies to position the bank as a leader in the parameters selected for comparison.” Corporation Bank and BoB had engaged McKinsey & Company for BPR and organisational transformation. Corporation Bank had earlier hired BCG for BPR in 2004. (See the references in Part I.)
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The most common tasks assigned to the consultancy firms were, thus, related to BPR, strategies for business improvement and organisational transformation.
It may not be out of place to mention that most consultancy firms are based abroad, begging a question as to how close they are to the ground realities of Indian banking systems and clientele base.
Performance of PSBs thereafter
Whatever may the purpose of engaging external consultants be, subsequent to their reports, the banks should show consistently better performance over a period of time. It is in public domain now that the banking industry was hit by a serious crisis over the last three years. The most clear manifestations are bloating stressed assets, poor credit off-take, sluggish deposit growth, tumbling performance parameters and huge losses. The industry is yet to truly recover. Would it be too much to ask if those PSBs which engaged consultants performed better?
The results of a three year period ended March 2017 speak volumes. The two tables below provide some data about the performance of five of these banks.
Table-2: Deposits, Advances and Productivity
| Bank | Deposits (Rs crores) | Advances (Rs crores) | Per employee business (Rs lakhs) | ||||||
| 2015 | 2016 | 2017 | 2015 | 2016 | 2017 | 2015 | 2016 | 2017 | |
| BoB | 617560 | 574038 | 601675 | 428065 | 383770 | 383259 | 1889 | 1680 | 1749 |
| Corporation Bank | 199346 | 205171 | 220560 | 145066 | 140322 | 140357 | 1914 | 1879 | 1958 |
| PNB | 501379 | 553051 | 621704 | 380534 | 412326 | 419493 | 1319 | 1359 | 1417 |
| IOB | 246049 | 224514 | 211343 | 171756 | 160861 | 140459 | 1324 | 1241 | 1228 |
| Syndicate Bank | 255388 | 261735 | 260561 | 202720 | 201368 | 199669 | 1539 | 1461 | 1351 |
Source: Performance Highlights of Public Sector Banks for relevant years published by Indian Banks Association, Mumbai
Among the lot, PNB recorded a sustained growth both in deposits and advances during the period. At the other end of the spectrum, IOB saw a continuous decline in its business. Corporation Bank recorded an increase in deposits but its advances suffered a setback. The loan portfolios of Syndicate Bank and BoB shrunk considerably.
Table-3: NPAs and Profits (Rs crore)
| Bank | NPAs | Operating Profits | Net Profits | ||||||
| 2015 | 2016 | 2017 | 2015 | 2016 | 2017 | 2015 | 2016 | 2017 | |
| BoB | 16261 | 40521 |
42719 |
9915 | 8816 | 10975 | 3398 | -5396 | 1383 |
| Corporation Bank | 7107 | 14544 | 17045 | 3027 | 3095 | 4440 | 584 | -506 | 561 |
| PNB | 25695 | 55818 | 55370 | 11955 | 12216 | 14565 | 3062 | -3974 | 1325 |
| IOB | 14922 | 30049 | 35,098 | 3322 | 2885 | 3650 | -454 | -2897 | -3417 |
| Syndicate Bank | 6442 | 13832 | 17609 | 4007 | 3327 | 4233 | 1523 | -1643 | 359 |
Source: Performance Highlights of Public Sector Banks for relevant years published by Indian Banks Association, Mumbai
NPAs of all the five PSBs more than doubled between 2015 and 2016. In 2017, the rise was much less due to higher provisioning made as required under the Asset Quality Review launched by the then RBI governor Raghuram Rajan with a view to cleansing the contaminated balance sheets.
- The decline in business, the business per employee, operating profits and net profits and the continuous rise in NPAs are indication that all is not well with the banks
The operaing profits, no doubt, showed increase during all the three years; but in 2016, the net profits turned negative. While this phenomenon could be attributed to the higher provisioning for NPAs and the increase in NPAs to revised asset classification, one should remember that these results are reflections on the overall performance efficiency of the banks.
The decline in business, the business per employee, operating profits and net profits and the continuous rise in NPAs are indication that all is not well with the banks. Similar is the fate of the other banks that hired consultants. The logical question that comes up is: What did these banks gain from the advice given by the global or domestic consultants engaged over a period of time?
Need for accountability and transparency
The study brings into sharp focus three issues. First, as public institutions answerable to the society, the PSBs need to be transparent regarding their business strategy. This becomes all the more important when the hiring of consultants involves substantial cost in terms of money and man hours deployed by the PSBs to liaise with the consultants, discuss issues with them and study and implement their recommendations.
Second, as the cost involved is substantial, there is a need for a cost-benefit analysis. While directly linking business to the advice given by the consultants is difficult, an audit of the bank’s performance after the hiring of external consultants is needed urgently. Otherwise, PSBs will continue to hire consultants professing their intention to bring transformation and concrete results. Had these claims been achieved, the PSBs which engaged the consultants during the last decade or so should have shown better results.
And the third but very pertinent question is related to the perceived incapacity of internal people to diagnose the shortcomings and suggest strategies to address them. With huge, extremely talented manpower recruited through competitive selection process and exposed to unique indigenous banking culture, are there no talents within the PSBs? These questions warrant a more in-depth study.
T.R. Bhat was joint general secretary of All India Bank Officers’ Confederation from 1995 to 2009. His book, Reforming the Indian Public Sector Banks-the Lessons and the Challenges, was released in April 2018.