“Does facetime with the boss matter? Soft information communication and organizational - PowerPoint Presentation

1. “Does facetime with the boss matter? Soft information communication and organizational performance” Samarth Gupta & Kaushalendra KishoreDiscussant: Harsh Vardhan13th Emerging Markets Conference, Mumbai12 December 2022

2. OverviewBank “alignment”Efforts‘Soft’ Information SharingSuperior Credit OutcomesCore hypothesisEmpirical TestsSettingAlignment of bank – same (state) convener bank and (District) lead bank; change in alignment post formation of new statesImpact on district level agriculture credit outcomes – growth, NPAs, pricing, etc Controlled for firm (bank) effect, year effects, ..Data from Bank Statistical Returns from 1999 - 2016 and State Lead Bank Committee (SLBC)

3. ResultsAligned banks increase credit in rural areas both at extensive and intensive margin. Increase is driven mostly by agriculture sectorThere is no significant increase in other types of priority lending – MSES, Housing, etc Credit per loan officer increases Increase in growth without change in lending rate, NPAs, loan officersComparing Lead Banks across districts ie aligned versus non-aligned shows the effect of alignment change. No impact on lending by non-lead banks or on deposits or aligned bank credit in urban areasCredit to trade in urban areas significantly increases (a result that the paper does not comment on)

4. Some ground realitiesLead bank / convenor bank set up is mainly for co-ordination between State Government and Banks not for banks to do their business betterQuarterly meetings attended by Chief Secretaries with strict protocol, CEO of Convener Bank attends only if the Chief Secretary is attending, else a lower officer (GM)Most discussion are each side voicing grievances about the other (all the four examples of the meetings cited in the paper describe this situation)District level bank officers rarely attend, most participants are regional / zonal office folks especially for the aligned banks (typically 20 to 30 people); all lead banks do not attend90 to 120 minutes meetings; no chance of any ‘soft information’ from the ground to CEO“This is no forum for impressing anyone” Senior Bank officer in-charge of Lead Bank business for a large bankPerformance / rewards for lead district employees, “About 40% of the bank manager compensation is variable” (paper)It is not even 4%, even the bank CEOs variable compensation (In public sector) is not 40%; for the lead bank employees at the district level is close to zeroNon comp rewards are theoretically possible but practically non existent, all promotions, transfers at the lower level highly rule bound“Alignment’ leading to better exchange of ‘soft information’ and solution to agency problem between top management and district level managers is extremely unlikely

5. Interpreting the results – Occam’s RazorClear support to relationship between bank alignment and positive credit outcomesMediator role of “soft’ information exchange is not tested, role of ‘efforts’ is tautologicalNo variables measure the mediatorsSimpler explanation; bank alignment addresses agency problem between the state govt and banksState governments want to push agriculture credit which has the largest political constituencyConvener banks are the obvious choice to push – “It’s the easiest neck to catch and squeeze”Banks too, must meet the PSL obligationAligned banks have the best distribution in the lead districts, by definitionHence, they push and succeed in growing credit in these districtsSome critical weaknesses need to be addressedNo control for district level demand factors90% of Agriculture credit comprises ‘crop loans’ which vary across time and geography, depend on cropping pattern, acreage sown etcIt is also highly influenced by events such as farm loan waiver schemes, elections, etcControl for branch density in districtsAgriculture credit is highly distribution dependent, well know S shaped relationship Branch density varies significantly over time