Chapter: 1
Introduction
Human economics grows out of efforts and enterprise by individuals/groups organisations i.e. Businesses. Valuable and useful products and services; or/and their mix are produced, which are consumed by different people/entities/organisations etc. according to their needs and for different motivations. This becomes source of another need viz. Need to Exchange within the community. Need to Exchange was originally met by way of “Barter”. But it had its own problems related to size/divisibility/preservation of Value requirements/ convenience of carriage and security etc. It gave rise to search for innovative ways of substitutes for actual mode of barter, which was search for Money in Effect. It led to path breaking innovation in the form of Currency and Coins. It was money (Cash). This was also a method of preserving the value of Efforts, put in producing goods and services. In due course , representative money in the form of Money Instruments e.g. Cheques/ Drafts etc. with nature of negotiability like cash, also emerged. With development of Industrialisation and Banking, the productive entities got categorised broadly as Savers and Users of money, channelised through Moneylenders and intermediation mechanism of Banks. It was financing function and money and its instruments etc. which became means for it.
In present day world, Finance is a factor of productive activity and Tool “of” as well as “for” Economic Growth. The rapid pace of research and innovation in the field of finance, which has converted money into a Commodity, on its own, leading to development of Capital Markets’ Securities, Insurance sector, financing by Non-Banking-Sector,Units, Mutual Funds, Pension funds, Hedge/Venture Capital Funds etc. Broadly speaking the word Finance envelops all these areas. However, Banks being creator of money, the word Finance, in a Narrow sense, conjures up the relationship with Banks alone. (in absence of specific mention about any area other than Banking).
All the above areas have developed now as separate subjects of study, just like other traditional subjects viz. Physics/Chemistry/ maths/ sociology/medical science/Engineering/ management etc. While dealing with or using the knowledge acquired in these traditional subjects, one will succeed only if the concepts/ ideas/ contents etc. of any subject are well learnt and understood by the User/ Student etc. Stating in other words, i.e. technically speaking one needs to be Literate First in any Subject. This Literacy if applied in the given environment having supporting as well as constraining factors, gets upgraded into Education, in the subject.
One’s ability to use knowledge of a Subject, according to his/her requirement is, thus, intrinsically co-related with the level and proficiency of Literacy and education, one has in any Subject/ Discipline. It appears to be an obvious and long held belief/premise, which is foundation of the proposed study.
Finance in broad sense as well as in narrow (i.e. banking related matters), has its own intricacies and has developed into vast area of knowledge and specialised skills, leading to newer innovations and ongoingresearch on day today basis. It is not merely theoretical but application oriented, touching daily lives of common man and economic entities-directly/indirectly/incidentally, which is called financial services broadly / banking services in narrow sense. Actually it has become a very specialised area of applied field of knowledge, where exist and operate- concepts/ skill sets/ products/markets/ relevant organisations/ consumers/ service providers/ intermediaries/laws/rules/regulations/ government/regulators and entire environment /history /Economics / grievance redressal mechanism etc., which may affect locally/ nationally/internationally, all or any of us.
Applying the aforesaid premise, Literacy and education in the area of finance i.e. certain level of knowledge/skill about financial products/ services/ markets/ service providers /laws /regulators/policies of Government/International practices/grievance redressal and dispute resolution mechanism and practices prevalent in the relevant financial organisations/ basic economics/ and enveloping environment including History/Geography /culture and socio-political norms etc. occurring in a place/community/state/nation etc.; is necessary to increase/ improve, once capability/capacity/ability to make financially useful and efficient decisions for self or others, or both.
The questions immediately arise about state of literacy &education first of general nature and then of financial nature, amongst general public and also amongst the finance professionals themselves- especially banking related services and bankers as well as its clients. The special mention of banks is necessary because it is sine-qua-non for financial inclusion in the country. As on date, financial inclusion is most wanted result, which goverments/ Central Banks and development economists’ desire for which banking is most essential financial Service. Everyone deals with one or the other banking institution –actively or passively; directly or indirectly; as service provider or its consumer or beneficiary or as an intermediary. Also what are the facts regarding regional disparity in the level of financial literacy & education; as well as what are the direct/indirect benefits of such literacy/education for the individuals and other stake holders?
There are many benefits, which are documented and are expected of increasing Financial Literacy/Education correlated with financial inclusion, which in turn shall have effect on economic growth and development affecting the wellbeing of commonman- specially the poor in the world in general and emerging economies like India and its states/ union territories. But the History indicates rise of exploitation and white colour crimes of different hues and intensity are also born parallely in the society. There are number of instances of irregularities in banking transactions/investment matters/credit card operations/ remittance matters/ accounts/ credit operations and grievance redressal etc. Naturally there arises a question whether the said financial literacy/education can have impact on people indulging in malpractices intentional/negligent/convenience and ignorance related etc. in general and specially in banking field?
Justification:
This study is proposed to be in the nature of cross disciplinary discussion, within the ambit of banking functions, finance, development economics and human behaviour as seen in different hues, coloured by legal compulsions, bank employees’ psychology and socio-cultural imperatives within a specific region of the country. The idea is not merely Theoretical, but rooted in the practical day to day life of individuals/ groups/ businesses etc. with reference to their banking transactions, which are undertaken with a view to deriving economic wellbeing, in a normal expected pattern, presumed to be a natural outcome, on the face value of an operative rule/ regulation/ policy/ guideline/ statement of intention etc. But, in real life, it turns out to be different, leaving a bad taste in mouth, due to deviant behaviour on part of bank/employees/authorities affecting existing or potential customers; and occasionally vice-versa too.
Crimes are always Intentional or due to strict liability statute. There are set procedures under criminal justice system to deal with. The victims can be advised to seek remedy under it and as a preventive strategy can be advised to be careful enough to avoid it as far as possible. The remedies are in criminal justice system, serving anyone or more of the punitive motive/ objectives–retributive/preventive/ reformative/ vindictive/deterrence etc. If victim reports the crime- State is on his/her side pursuing the case and if it succeeds there is satisfaction in the society at large. If it fails, the victim is unhappy with Justice dispensation system, and not with the business of banking per se most often, (if the culprit has been booked and punished under prevailing disciplinary system in the organisation along with recovery of loss, the victims of white collar crime do not wish to get involved also in the judicial process, most often). But, the Softer category of such events are altogether different cup of the tea. The intention to commit such acts, may not be there in the first place. Quite often, the “Contract” involved in any human transaction- voluntary or involuntary, for value or without value in it, is not operated or understood properly by both the parties to the transaction. The victim is told about the circumstances which are responsible for any wrong done, and not the bank employee, per se. There is no set system which can deliver quick justice through judiciary, in such cases. The system of dispensation of civil justice system in the country is too slow to give relief to victim of such soft category inconveniences. One copes up with the situation, by cursing the organisation/ bank etc. and trying to become fatalist i.e. cursing one’s own fate for inconveniences caused. If hurt is deep, one may disconnect his/her relationship with the bank and spew venom against it in his own circle, tending to malign the image of the bank; which is much greater loss for any financial Institution but in the long run and the victim and perpetrator both never realise it.
Going a step further, if there is an intention present in doing such soft hurtful event, it will be a Malpractice. Mostly, it will be an irregularity done by bank’s employees for some motive and always they may be able to take shelter behind some circumstance, which may commonly be used in that particular locality/ community/ culture or some commonly accepted humanitarian issue, to avoid responsibility for the misdeed. The victim may be knowingly or unknowingly compelledto keep quiet and not to raise any hue and cry. There is a kind of camaraderie amongst the employees to defend each other if any one protests. The natural question is whether awareness about the functioning of a financial Institution and rules / regulations governing any financial entity, will encourage people to protest more often, leading to reduction in malpractices in such entities. A hypothesis emerges that in case of financial entities- specially banks, if sufficient level of literacy and education exists on part of a relevant client, the operators of the financial system will desist from deviations which are done taking advantage of other’s ignorance. To investigate into this hypothesis, the title of research project has been chosen.
Scope of Work:
It is true that many questions about impact of financial literacy & education needs to be answered in the changing scenario in “ Finance Areas”, like its products/ markets/related and incidental financial services, which really embrace the entire firmament having banking/ Securities of Government and Corporate world (Primary and Secondary markets etc.)/ Insurance Sector Mutual Funds/Pension Funds/ hedge& venture Capital Funds/ and various financial institutions in Non-Banking Financial Sector (N.B.F.S.). For this study Banking has been chosen and reference to other areas is going to be only incidental. Banking is very broad topic. Within this also the study will focus on “all those activities which can be a classified as “Malpractices”. The word malpractice can be used in specific sense as civil wrongs, in the instant study, and not merely as a general broad enveloping connotation which includes all banking related non-violent crimes like serious frauds/ forgeries etc. where perpetrator has serious intentions of making gains at the cost of another, and without bothering for the costs which may be awaiting themselves also, mostly. They commit crime, remaining insensitive to laws/rules etc. (not ignorant but insensitive) and do it for gain (not for convenience and not due to negligence alone). Malpractice, which is focus of attention in the present study, is practice which is not on expected lines and quite often done in banks for very much convenience of self or somebody else, gain or no gain, and it can be termed as mala fide because the perpetrator knows that his/her action/inaction/ delays etc. should not be done and organisation may not rescue him if the same is caught and proved (word is ‘may’i.e. there is scope of such rescue. No such scope exists in case of an act or omission, which is ‘crime’). Of course, certain malpractices are done due to shear ignorance and certain are result of carelessness and negligence. Depending on consequences some of the malpractices may look like or become technically ‘crimes’/ frauds/forgeries / or any other civil wrong/strict liability offence, but actually mens- rea may be missing. In all such cases, the perpetrator is conscious and sensitive to protect his own interest and does not wish to be accused of any wrong doing, while taking advantage of victims’ignorence/ weakness/ dependence/ trust & confidence etc. to serve his /her own purpose. This study proposes to focus on such Malpractices mainly.
Localisation of the problems in this regard differ from place to place hence the research is geographically limited to present day U.P. that is post 2001 when original U.P. was bifurcated into Uttara Khand and present day U.P. This point can be explained by a couple of examples: In southern India, anyone visiting Ayyappa temple has to wear black. Suppose, one is a security guard, his not wearing of officially prescribed dress will be overlooked by an Inspection Team. In Bengal, during Durga Puja customers have to wait if Durga puja is on in the branch premises. In U.P. may be it is Vishwakarma Puja. Point is that limitation on geography is relevant though hypothesis if proved right, it will be true for all India with certain different conditions. However, here we limit our investigation to U.P. It is a vast state, with huge population having almost all the religious/cultural/ political denominations, number of local languages and dialects, different customs and a long history/ low literacy/high poverty/doubtful governance/ debatable law & order situation/ low economic development/ big banking structure of all kinds etc. which makes it appropriate for the study. Huge population ensures availability of different groups of people from all similar/all dissimilar/all mixed cultural/linguistic/ideological background. It is a known principle of behavioural science that people in groups behave differently than as individuals and there are principles of group dynamics which determine this behaviour which can be ‘peculiar in nature. Bankers and their clients and vice-versa, face these situations on day today basis, and provide wide arena in the State of U.P. to study these aspects as well as to do analysis as to how these affect the commissions/omissions in banking operations, resulting in identifiable malpractices. It is expected to give some glimpses into psychology of general masses and banks’ personnel also.
The word finance also needs limitation. When some one uses this word, immediately “banks” come to the mind. The study is to be done with reference to the banks only. Actually finance does include within its ambit areas like Insurance/capital market/ Mutual funds/ Penssion funds/ Govt.Tax Revenue/ Borrowings etc also. In fact, the findings of this study may mutis mutandis apply in other financial sector areas also. Literacy and education used in the title have same commonly accepted meaning but in actual life get used in intermingled way. Besides, since these concepts are used with reference to operation of banks, it is no limitation that a client may be really illiterate. Financial literacy and education is possible to be imparted to even illiterates, though a difficult proposition. The period upto which the data and information has been mostly kept updated is limited upto March, 2013. However, there can be exceptions.