Management Perspectives

Deepak Sharma, Head of Processing Centre, Bharat Bank was looking at the bunch of loan files submitted by the marketing staff of the centre. He was always excited about the flow of business reflected in the volume of leads (files) on his table. Of late, he would become anxious seeing the files on his desk. Bharat Bank’s MSME Processing Centre, at Lucknow under Deepak’s supervision, consists of two key departments: processing officers responsible for loan application scrutiny and approval and marketing officers tasked with sourcing new business leads.

Bharat Bank is a major player in India’s private banking sector, with a well-established presence across the country. Over the years, the bank has carved out a significant market share through aggressive marketing and a focus on capturing diverse customer segments. The MSME segment, which includes micro, small, and medium enterprises, has been a critical area of focus for the bank. MSME loans are crucial for driving economic growth in the country and are a lucrative segment for financial institutions.

However, the MSME lending market has become increasingly competitive, with several banks and non-banking financial companies (NBFCs) aggressively targeting MSME customers. Bharat Bank, despite its large network and established presence, has begun to feel the effects of this competitive pressure, particularly in terms of falling margins and diminishing market share in the MSME segment. The Head Office’s Marketing Department is keenly focused on growing the bank’s market share in this segment, exerting significant pressure on all branches and processing centres to achieve business growth.

The leads for MSME are generated by marketing officers who also carry out initial due diligence of the prospective lead. After this, they discuss the viability of the proposal — credit history, financial behaviour, managerial capacity, financial & economic viability, and technical aspects for assessing the creditworthiness of the entity — with the centre head, who is assisted by his deputy Mr. Rakesh Gupta in decisionmaking. Based on this, the decision for approval or rejection of the lead wis taken. After this, the file is sent to the processing officers for disposal of the application. The processing officers follow a well-laid-down process for appraising the loan proposal and put it up for sanction to the centre head after incorporating the recommendations of the deputy in charge, Mr. Gupta.

Deepak Sharma was responsible for the overall functioning of the centre, including achieving business targets assigned to the processing centre by the marketing department at the head office. Business growth was a key parameter in annual performance appraisal, pay raise, and in promotion decisions of the staff at the processing centre. At the same time, Deepak Sharma’s role as the team leader of the MSME processing centre is to ensure that loan applications are properly evaluated, processed, and sanctioned in compliance with the bank’s internal policies and the regulatory framework governing MSME loans.

Recently, Deepak noticed a worrying decline in the quality of the leads being generated by the marketing officers. Several issues have emerged which are inconsistent with the policies and procedures of the bank. Marketing officers are inflating the income and revenue projections of MSME loan applicants to meet the eligibility criteria for higher loan amounts. As a part of initial due diligence marketing officers carry out credit history checks, which are crucial to evaluating an applicant’s ability to repay the loan. The credit reports of potential clients are being neglected or deliberately downplayed by the marketing staff to push through more loans.

Apart from this, the marketing officers are pressuring Deepak and the dealing processing officers to approve higher loan limits for customers than they are eligible for, to meet aggressive business targets. Deepak, having a long experience of over twenty years in the industry, understood that certain industries are inherently riskier than others, depending on factors like market volatility, government regulations, competition, or susceptibility to economic downturns.

These aspects were used to be discussed in detail earlier were now overlooked by the marketing staff for pushing loan applications. Other aspects like lack of clear business strategy or expansion plan, or a sustainable roadmap for growth were sometimes overlooked by the marketing staff of the Centre. Similarly, the profitability aspects and high completion in the business segment in which the customer was operating were not given due emphasis by the marketing staff. In some cases, the marketing staff pushed loan proposals based solely on the strength of personal guarantees from the borrower or business owners, without fully assessing the business’s ability to repay the loan. Deepak explained several times that personal guarantees alone do not compensate for poor business viability.

Even this was not given due emphasis while discussing the viability of the proposal. This unethical behaviour by the marketing staff deeply disturbed Deepak, as it not only violates the Bank’s ethical guidelines but also increases the risk of non-performing assets (NPAs) in the MSME loan portfolio. A rise in NPAs could result in financial losses for the bank and damage its reputation. Deepak, realising the seriousness of the situation, initially attempted to address these issues by discussing them directly with the marketing officers.

However, instead of acknowledging their actions or taking corrective measures, the marketing staff escalated the matter to the VP of Business Sourcing & Excellence at the Head Office, accusing Deepak of obstructing their efforts to meet their targets.

Several things were going around in Deepak’s thought process. The marketing officers’ actions not only misrepresented the borrowers’ financial health but also undermined the fairness of the loan approval process. MSME borrowers who do not meet the eligibility criteria should not be approved for higher loan amounts simply to meet business targets. He understood his role in achieving the business targets of his processing centre. But pushing through more loans may result in shortterm business growth, the long-term impact could be disastrous if these loans turn into NPAs. Deepak had to weigh the immediate pressure for growth against the potential long-term damage to the bank’s financial health.

Reporting the issue to the ethical committee would be the correct course of action based on the bank’s code of conduct, but Deepak is concerned about potential backlash from the Marketing Department and higher-ups at the Head Office. As a team leader, Deepak has a responsibility to achieve business targets but at the same time uphold the bank’s policies and protect its financial interests.

Turning a blind eye to the marketing officers’ unethical practices would compromise his integrity and put the bank at risk. Skipping due diligence increases the likelihood of errors or oversights, which could lead to poor loan performance down the line. During his long career, he has overcome several challenging situations but this seems to be an extremely difficult situation entailing careful consideration of all aspects. His ponderance was broken by the entry of marketing staff, Dharmendra, who had come to enquire about the meeting for decisionmaking about the fate of files lying on his desk.