SOPs for Banking Industry

Banking Industry

What does being systematic as in a lined-up presentable and organized format signifies? A banquet that we see at parties and feasts should be an easy recall. Interestingly, ‘bank’ is also an answer. Both the words bank and banquet emerge from the same etymological roots – banque in French or bench in English until the words began to acquire their practical distinctions from the late 15th century onwards. The folklore around the wordplay is that merchants in medieval times used to sit in the marketplaces and used benches (to place and showcase) to trade in money like commodities.

Today, the functioning of the banking industry is incomparably wider, complex, and sophisticated. Under its primary functions, banks offer a wide number of facilities like saving and current deposits, loans and advances, credit and overdraft, discounting bills of exchange, etc. The secondary banking functions include fund transfers, periodic collections and payments, portfolio management, foreign exchange, underwriting of shares and debentures, etc. With the overabundance of operations on its table, there is no way that any bank can avoid being systematic or process-oriented in planning and carrying out its functionalities.

Challenges Faced due to Poor Processes and Management Systems

Defaults in Loan Repayment. When banks are not careful of whom they lend their money to, it increases their exposure to NPAs (Non-Performing Assets). It affects their income and cash flow. There are means to address NPAs like loan restructuring, collateral possession, conversion to equity, or selling such bad loans/advances off at discounts. However, the lesson to be learnt from such experiences is that there should be a robust mechanism for credit risk analysis of the loan applicants. If there is no such system, banks are extremely likely to have risk exposure to NPAs.

Slower Services. Customers often complain about slower services in the branches of banks and financial institutions when it comes to any service that is off the routine. ‘Off the routine’ need not mean ‘off the planning’. The operational planning must account for all the primary and secondary functions of a bank. But we often get to see quite the contrary in most of the banks. Employees are often found running from here to there in search of an answer to a service request. Such a scenario arises when there are no guidelines and procedures to be followed for different situations.

Failure to Meet Customer Expectations. A bank may fail to meet customer expectations in any of its services. For example, if there is a technical glitch in withdrawal or online payment, customers would not be happy. Or if banks ask customers to fulfil KYC compliances that are more than what is prescribed by the bank’s rules or the regulatory guidelines, it is natural for customers to feel displeased. Banks need to strictly follow the established guidelines with due diligence. If those guidelines, rules, and regulations do not find their due place in the operational framework, not only can it lead to violation of protocols but also create room for customer dissatisfaction.

Employee Training. A well-defined operational framework plays a distant but critical role in employee training. It serves as a major input source in determining what employees encounter in the field i.e. at the time of actually carrying out their duties and responsibilities and how they are supposed to be performing. It helps in identifying and defining the training needs and keeping the training programs and lessons to be learned closer to reality instead of imparting a mere theoretical burden on the incumbents. The striking difference could be seen in what customers experience in a poorly-managed public sector bank vis-à-vis a professionally-driven private sector bank.

Problems in Scaling. It may be easier to lend money to a few persons but if the applicants are a hundred, the standards of operations will have to be defined. The same is true for all other banking functions. In other words, defined processes and systems let a bank handle more business. Automation helps but that too is possible only after processes are in place. From fulfilling KYC requirements to handing over the account opening kit, processes help banks achieve standardization and do more while adhering to the established standards of performance and output. Poor processes and systems deprive businesses of this opportunity.

Ineffective Audits. Audits help businesses assess their performance and functioning with the goal of deriving insights for improvement and eliminating loopholes and weaknesses. Internal audits help banks to review their internal control systems, risk exposure, assets and liabilities, routine operations, accountability and responsibility relationships, compliances, reporting, product performances, quality of banking services delivered, IT infrastructure, etc. Audits can be wide and extensive and without proper procedures and protocols, they could turn out to be chaotic in itself and disruptive to the ongoing banking operations.

Benefits of SOPs (Standard Operating Procedures) to Banking Industry

Adherence to Account Opening Protocols. Opening accounts for customers and clients is one of the foremost activities for banks. Banks need to be careful when they let someone open an account with them. There are internal and external protocols to be followed. The details entered into the database at the time of account opening are long-term in nature. This information will be used for delivering services while adhering to regulatory guidelines. Therefore, a planned, exhaustive and systematic procedure is required to carry out account openings. SOP helps banks define and map this procedure in a step-by-step and integrated manner while keeping provisions for the protocols. Similarly, SOP for banking and finance can be used in executing all other processes and operations of banks and financial institutions as applicable as a powerful tool for improved business process management (BPM).

Sound Loan/Credit Application Processing. Providing loans, advances, and credit are some of the basic services provided by banks. The interest earned from lending money is a primary source of income for commercial banks and financial institutions. So, banks are interested in the ROI generated from these assets and hence, they must be careful while investing in these assets i.e. in giving out loans and advances. Banks need to check the creditworthiness of loan applicants based on factors like security and stability of applicants’ income sources, consistency in loan repayment in the past, EMI-income ratio, etc. Other factors include purpose of loan, amount of loan, type of loan, regulatory conditions, income tax records, etc. These are important considerations in evaluating whether or not a loan should be sanctioned. SOPs help to ensure that these parameters are included in this evaluation process and the operational activities are carried out in the right sequence.

Managing Service Providers. Banks are also businesses and they also resort to outsourcing to emphasize focus on core business, increase operational efficiency, and lend professional expertise to the outsourced services. IT outsourcing is the most common form of outsourcing for banks. There are also other functions like customer support, housekeeping, HR, marketing, logistics, security systems, etc. which banks prefer to outsource. From selection to performance review of these service providers, banks need to have defined processes so that only the eligible entities get the service contracts, the services delivered by them are being consistently monitored by designated authorities, timely and detailed reporting takes place, bills raised could be verified, etc. SOP for banking operations can ensure that all the operational activities related to the management of service providers are planned and mapped to detail to achieve the functional and business objectives.

Ground for Digitization. Digitization of banking services would be very difficult if there are no existing operating procedures that imbibe the rules and regulations to be followed while carrying out the operational activities. SOPs provide the information inputs for identifying the software requirements for digitization or process automation. Whether it is developing a new software application or to identify the right software product or customizing/upgrading an existing product, banks must have their concerned processes defined in terms of triggers, sequence of tasks, expected input and output at every stage, authorization framework, account rights, access to process owners involved, timelines/timeouts to be followed, entry and reporting, OTP generation, etc.

Authority and Accountability. In banks, authority and accountability are extremely sensitive matters and SOP for banking operations can play a big role here. Even though a strong software application takes care of the credentials and rights of user accounts, as we discussed in the point above the banks have to first define and map the authority-accountability factor associated with every position in the organization. A strong SOP clearly establishes who will make the call, who will respond to that call, what is to be done when the call is made, and so on till the process output (that too defined in specific terms) is achieved.

Why BPX as SOP experts

We are a management consulting firm specialized in SOP writing and development with over eight years of experience across a multitude of industries. Our team comprises engineers, MBAs, financial experts, business process consultants, SOP consultants, and SOP writers who help us bring diverse perspectives to the table in finding the best solutions to problems. And in delivering our process consulting and SOP writing services, we follow planned, systematic, and proven ways of working while observing the highest standards of business morals and truthfulness.

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