Providing Credits to Rural/farmers in a Non-banking Finance Company - Essay Example

 Using your own organisation as a case study, collect material relating to the implementation of one of the following:..... casestudy:- Ours is a non-banking finance company, which provides credit to rural/farmers for their all activities, which they do and we are an organization registered under Cooperative Societies Act. Assigned to work in rural areas and for rural people. Mainly our clients are farmers reside in rural areas having agricultural land. Our organization was established in 1959 and since then it is providing credit to farmers for their long term as well as short term needs such as for irrigation facilities, farm mechanization equipments, dairy development, animal husbandry, horticulture and plantation, floriculture, rural housing, different types of vehicles to carry agriculture produce, rural godowns, non-farm activities etc. Earlier years we enjoyed almost monopoly in rural credit but due to government policies and emphasis on providing rural credit by other government owned and private banks our performance level is decreasing day by day. We are facing stiff competition by the other banks, which have major presence in our area of operation. We started with mere Rs. 1.0 million with 40 people now the organization have working capital of Rs. 330 billion having 4000 people on role. Since inception we have never been in loss. But recently our business has been shrinking and for the first time our landing has gone down by 25% in one year. Our recovery of loans also under great pressure and in the current year we cannot be able to improve the recovered amount. Our organization always stood at the top in the country and always performed upto optimum level, but recent trend shows decline in overall performance of the organization. During the years policies of the bank are not changing with the time. When govt. allowed private banks to operate specially in rural areas they came with new work culture. Their policies are more inclined toward customers and their services are quick and fast. They came with new technology, which improved their services and response time. They penetrated the existing very quickly and effectively. Due to this they had taken our market share quickly. Now with new technology and work culture they are expanding their customer base. Also the policies of the govt. to provide rural credit to maximum number of farmers enhanced their new customer base. They are providing new products having variations in procedures attracts lot of customers. On the other hand our bank is sticking with the old procedures and policies. Due to govt. control policies are slow to change. Bank does not have newer products to retain their old customers as well as attracts new customers. Technology development in our bank is at the initial level and could not be able to provide better services to its existing customers. Business of the bank is started shrinking day by day and the existing customers are moving towards other banks. We are not been able to diversify our business so far and it affects us adversely. Efficiency of the employees is decreasing. Motivation level of the employees is very low. Top management is not willing to change. The old pattern of performance appraisal is still in existence and has been taken by the employees as routine affair and has least effect on their future prospect in the bank. This thinking always demotivates employees. Now as we know banking industry is at the heart of economic change. As we grapple with the challenges and opportunity ahead, the ability to manage change is the key to our success. As a customer, one had to stand in queue to pursue for loans and wait seeks and week. But entry of the private banks in this sector changed the whole scenario. They adopted advanced technology, which has changed the whole picture and customer service. Bank is no longer a bank building but the computer screen, keyboard and Internet had made it possible to do transactions from anywhere and at anytime. So in this way the efficiency of our bank has suffered a lot. Due to this the overall performance of our bank is going down and down. At structural level, banking industry can expect other changes; one could expect consolidation through mergers of institutions. The coming in of Baser II norms as part of regulatory requirement, Banking industry on the whole as well as our organization face the challenges of managing many types of risks such as credit risk, interest rate risk, liquidity risk and operational risk, challenges will be to have cost effective technology that will cover the entire system. While technology will continue to be an important driver of change, it is important to remember that for changes to be successful there must be corresponding changes in the management and mindset of the people to make changes lasting and sustainable. Finally we come to the conclusion that we have to create an organizational culture that welcomes changes or at least adapts to it in the quickest possible time. Demotivated staff, prevailing market situation, stiff competition, and strong inefficiencies results in adverse effect on bank profitability and enhance all the risks. It also results in dissatisfied customer satisfaction/value. Due to above problems in my organization, we need to review the present practice/system of performance appraisal and willing to adopt more broader system of performance management. As we know most of the time performance appraisals for determining compensation increase, training need identification and for promotions. The performance management has delinked itself from being an instrument of evaluating performance and bringing about better performance in the organization. The real problem for the organization is not that of performance appraisal but that of performance management. Recruitment, selection and training come first. Appraisal comes later. Errors in selecting people and training them have to be reduced minimum so that organizations can get better results. Performance appraisals are nothing more than performance audits-like most audits reports, which tells that what happened against what should have happened. This cycle gets repeated on a periodic basis. Identifying performance measures is easy if the job is clearly defined but difficult if it is broad. It is easy to evaluate performance at the lower levels of our organization, where specific jobs and certain tangible and objective standards of performance has been clearly defined and identified, but further up in the hierarchy, jobs becomes more complex, tangible standards of performance are difficult to specify. Irrespective of the level, by and large most companies and also our organization measures performance on the following criteria – quality of work, quantity of work, job knowledge, job tenure, absenteeism, rate of advancement, self judgment and judgment by supervisors. Our organization appraising employees performance through confidential reports, which is a traditional way of appraising employee’s performance. A confidential report by the immediate supervisor is still a major determinant of the subordinates promotion or transfer. The supervisor writes about a paragraph on his subordinates strength, weaknesses, intelligence, attitude to work, attendance, conduct and character, work efficiency etc. The format and pattern of report may vary with each supervisor so keeping in mind my organization provides prototype confidential report Proforma to provide necessary comments. On the basis of overall assessment supervisor provides the rating i.e. (good, average or poor). If we analyze the performance appraisal system of our organization we cannot say that it is valid or reliable. There is no objective rating procedure. These ratings need to be validated against other methods of evaluation. Human behaviour is complex and traits such as job knowledge, experience, ability to get things done etc., are hardly independent of each other. The validity of rating also depends on rater’s characteristics. The ratings may be opportunity bias, group characteristic bias, knowledge of predicator bias and bias in ratings. Ultimately performance appraisal fails on various counts i.e., the supervisor plays dual role of judge and helper, too many objectives create confusions, time gap, poor communication keeps employee unaware of their role and expected performance and may be difference of opinion between expectations of a supervisor and a subordinate reflecting the latter’s performance. In most modern organizations performance appraisal system has been subjected to fine tuning and a number of concepts like “Management by objectives”, “Pay for performance”, “360 degree feed back”, “competency based performance management” etc. has been adopted. A paradigm shift is defined as one where we look at things differently and when the perception of the situation changes to the opposite though the situation remained the same. There is a need for paradigm shift as far as performance management is concerned. It should not stop after carrying out the performance appraisals. It’s not just a reward and punishment exercise. The focus should be on what to do after that, how to make all the people perform to the best of their ability. So our organization needs to have effective performance management system which can be described as:- (i) A consistent system of measuring performance :- As we know the ever changing situations (external or internal) compelled the organization to set their goals accordingly. Setting of new goals results in role change and therefore, yardstick of measurement keep changing. We feel that there is a serious error in the existing structure, system, methods and processes has been erupted. So induction of new system, i.e., Performance Management System is necessary for the said organization. (ii) Creating and building a high performance team which is a difficult task easier said than done and requires greater amount of effective leadership qualities. (iii) Coaching and Training :- Most of the organizations never do the training regularly which leads to serious performance problem and in the system it has been provided externally or internally. (iv) Setting objectives and knowledge resource assessment. (v) Empowering (vi) Delegating :- In most of the organization more often there is no delegation and if done it is more of abdication or relegation of responsibility. (vii) Leadership: - Most of the time, leadership has not been developed systematically based on structure. Leadership required at every level. It is a personality oriented and revolves around person or people in most of the organizations. (viii) Performance review or appraisal: - It has been done on the same manner every year in most of the organizations and more a force in the eyes of every employee. (ix) Counselling :- It has to be done externally, results in altitudinal change, though most of the employees don not like to be counsel. Most of the employees take a fatalistic easygoing approach, think that they know everything and reacts defensively to constructive criticism. It may be due to impact of culture. (x) Mentoring: - Organizations need it and to be done internally but it cannot be done without proper training. In the ever-changing situation both external as well as internal environment, performance management is a burning problem organizations are facing. On one hand people are complaining for lesser job opportunity and on the other hand organizations are finding it difficult to get the right people. Maximum number of mistakes occurred in recruitment and selection process. Organizations are in hurry to hire peoples and walk in interview created havoc in the problem. Quick hiring, dissatisfaction, dillusionment and the separation shows the results of faulty hiring and recruitment process. In such a situation looking to improve the performance appraisal will not solve the problem. Very few people can understand the difference between efficiency and effectiveness. Most of the time organizations do not understand what is performance management? Even the MNC’s are no exception they grow because of their size, money power and momentum not because of better people. They attract talent because of pay packets. They are always looking for highfliers but many fliers together rarely make a good team. Organizational success depends upon teamwork not on stars. Ordinary people having right attitude make good team members. Organizational or team success is all in the mind like any other game. Positive attitude, never say die spirit, coaching training, self-motivation, situational leadership, perseverance and tenacity are the key. Basic Requirements of a performance Management Systems For any system to perform we need some basic requirement i.e. a culture of change. In this culture we encourage our people to be alert for the first signs of change. Change descends on everyone equally; it is just that some realize it faster. Sudden changes are realized but it is the gradual changes that are ignored till it is too late. we must develop our own early warning system, which calls our attention to it. in case of change being forewarned is being forearmed. We must encourage our people to anticipate change even when things are going right. Most of the people wait for something goes wrong before they think of change. The biggest enemy of future success is past success. We must not allow routines to become chains. It is the routine we have got accustomed to that obstructs change. we must realized that fear of unknown is natural. Changes come with a feeling of insecurity. Everyone feels the fear of unknown, but the ability to manage fear without getting paralyzed is the quality, which is needed by the people. We must surround ourselves with people who are open to change. so the basic attitude of the people in the organistion will be to accept change as a natural process not as applied on them. (i) A consistent system of performance appraisal where the main objective and knowledge, role assessment are clearly defined and agreed upon. Mundane tasks are not to be specified. It is necessary that the basic job description and job specifications are clearly spelt out for all and they are aware of them. (ii) How are the organizational goals and objectives set? Is it top-down or bottom-up? Are the goals and objectives are SMART (Specific, Measurable, Achievable, Realistic and Time Constrained). (iii) Is there a shared vision? How relevant is the company mission statement, vision statement, quality policy statement etc? So people understand them and can explain what they stand for? Most of the time top management team (TMT) does not know what is happening at the gross-root level. (iv) Are managers capable of their own objectives and deciding upon subordinate’s objectives? (v) Frequency of performance review. It is critical for strategic areas. Most of the time TMT seen to be obsessed with a short term operational focus rather than long term strategic focus. (vi) Motivation and morale of the people in organization at different level. (vii) How serious is TMT in developing performance management system because their involvement and commitment is required. (viii) Kind of relationship between Management-Worker’s Union. (ix) How amenable is the company is willing to change? (x) How much TMT knows and assess the situation in the market place. (xi) How employees perceive the performance assessment? (xii) What are the key organizational goals? Are they congruent? (xiii) How employee perceives reward and punishment? (xiv) Personal training needs. Is it adequate and relevant to the changing needs of the organization? (xv) Leadership style in the key to performance management system. Counseling and mentoring is also the most important part of the performance management system. (xvi) Customer’s perception about Customer’s perception about services/provided by the organization, quality o services and complain compliance is the key to performance management system and the feedback by the customer’s and response to it leads the organization ahead of others. Benefits:- The performance of the people in an organization largely depends upon to a extent on direction and leadership of TMT. When Performance Management System is in existence it is easier to access as to what went wrong, where and who is responsible. We can take corrective measures immediately. Lack of such system leads to punishment of junior and middle level managers and the top management team goes scot-free. Only a properly designed Performance Management System can establish the real state of affairs in any organization and keep it healthy. Challenges: - The biggest challenge for establishing Performance Management System will be resistance to it from people who are responsible for designing and implementing it. Judgment is very important in some critical areas, which cannot be measured. Care should be taken that these areas are not given to novices and handled by experts with no axe to grind. Performance Management System works with internal experts but experience shows that in such cases top management team skip some sensitive and critical areas where it is directly accountable. It can be done externally but for that willingness and time of the organization is needed. This unfortunately leads to different kind of problem, i.e., when consultants who are close to power centre, come across the real issues where top management team is involved, they conveniently swept the problems under the carpet. Objectives of the Performance Management System are not to find scapegoats but to find where the crux of the problem exists and to take corrective measures. Individuals are important but the organization is more important and Performance Management System aims to safeguard the interest of the organization above the personal interest of the individuals. If the organizations are willing to establish good performance management systems, they must have the right attitude and willingness to change and to stick around the basics of Performance Management System. Finally it is the attitude, which decides winner or looser. Reference: Visited on 20.5.2006. Read More