Happy Living Bank, a smaller national bank based in State of Bihar, opened its first out-state branch in Jharkhand in 2009. The branch was opened for a variety of reasons. This would be a significant step toward Happy Li

Happy Living Bank, a smaller national bank based in State of Bihar, opened its first out-state branch in Jharkhand in 2009. The branch was opened for a variety of reasons. This would be a significant step toward Happy Living's goal of becoming a national bank. Having a presence in India would enable the bank to better support its Biharian stakeholders while also generating additional revenue from mostly India-based Biharian-owned, but also linked, businesses. Although the majority of Happy Living's customers were small and medium-sized businesses, many of them had national operations. Furthermore, having certain personnel based in other states would allow the bank to keep up with Indian banking trends better. Managers at Happy Living were well aware that the competition for Biharian clients in India was fierce. Many Bihari banks have well-established operations in India, some of them substantially larger than Happy Living. Nonetheless, they believed it was the appropriate time to launch all India based offices because many tiny businesses were having trouble acquiring finance as a result of the financial crisis. Jharkhand was chosen as the location for the branch because it was India's developing industrial and money centre-based state, and because the Jharkhand-Patna area had a significant concentration of Biharian-owned and operated enterprises. The Jharkhand branch of Happy Living was a wholesale operation. The main purpose was to lend Indian Rupees to Biharian or Indian-based businesses. To reduce the risk of other state deposit withdrawals, the branch had to raise all of its funds from the all-India money markets, with the exception of a tiny capital contribution from Happy Living Bank. For the convenience of Happy Living's other states clients, only a few retail accounts were kept. To help establish the retail part of the firm, no special services were supplied. Cheque clearance was outsourced to a large Indian bank situated in Jharkhand. The bank's management - Hitesh Shukla, a former account manager for Happy Living, Madhupuri - has been promoted as senior manager of the Jharkhand branch. Shukla swiftly engaged five experienced account managers who had previously worked for other Indian banks and had a track record of success. Clients in need of loans were identified by the account managers. The majority of the time, the account managers were given specific geographical regions to grow. Two were on the East Side, two on the West Side, and one in the Central Business District. Two of the account managers, on the other hand, had extensive past industry experience and were tasked with generating possibilities with a few carefully selected prospective clients in those industries who were located beyond their assigned territory. Shukla was well aware that the account managers he selected had a variety of business backgrounds and operational methods, but he was unconcerned. He only imposed a few restrictions on their operations. He assured the account managers that he didn't mind how they found and nurtured their clients as long as they "booked good deals" ultimately. Shukla set up each account manager as a "mini profit centre" for monitoring and incentive purposes. The interest generated on the loans initiated was credited to their profit centres, and they were charged for the expenses involved, including the cost of funding the loans. Although this was not the technique employed by Happy Living Bank, Shukla believed that such a system was necessary to foster account managers' entrepreneurialism, which would be required to swiftly expand the branch. The account managers were paid a bonus of 10% of the aggregate profits created in their small profit centres each year, in addition to their base salary, which were significantly below comparable bank averages, according to branch studies. They were not penalised for annual losses, but it was recognised that losses would not be permitted over long periods of time. Shortly after the fiscal year ended, the bonuses were paid out in full in cash. Shukla believed that after the account managers had expanded their loan portfolios to their desired levels, their overall compensation would be competitive with established banks. Shukla had hoped that when the branch grew, he would be able to set targets for each account manager and reward them for meeting them, but he didn't have enough understanding of the market potentials or the account managers' capabilities to do so during the start-up phase. He was concerned that in the wholesale banking market, short-term profits were merely an imperfect measure of performance. For one thing, the loans were normally given for 5 to 10 years, and no loan was ever given with a 100% possibility of default. However, he believed that the primitive infrastructure in place would suffice throughout the branch's first stages. Over time, a more complicated reward system would most likely arise. Account managers needed to be able to effectively manage their time. The quantity of potential clients was enormous across all geographical boundaries. However, the competition was fierce. Many Biharian banks have well-established operations in India, and other Biharian-oriented firms had also raised funds from non-Biharian banks. The account managers at Happy Living have to discover and solicit business from their top prospects. Businesses who desired larger loans with higher margins and, more significantly, the ability to repay the loans were the ideal clients. The account managers had to factor in both the costs of locating prospects, researching their conditions, and drafting loan applications, as well as the likelihood of the loans being accepted. The account managers created a credit application package, after identifying loan prospects. A description of the client and its business, the anticipated use of the loan funds, the proposed loan terms (e.g., size, payments, fees, security, covenants), and an appraisal of the loan's risk were all required in the loan application package. Risk was dealt with in a variety of ways. Shukla may approve applications for loans of less than rupees ten lakh. If the proposed loan amount was greater than rupees ten lakh, the application had to be authorised by the branch's Credit Committee, which included Shukla, the branch's CFO/treasurer, and two of the branch's most experienced account managers. If the loan amount is greater than ₹5 lakh, the Happy Living Bank Corporate Credit Committee in Madhupuri must additionally approve the loan before it can be made. Management, national bank examiners, and external auditors assessed loans on a regular basis after they were made. Clients were also watched on a regular basis by management for symptoms of potential difficulties, which might be suggested by Management, national bank examiners, and external auditors assessed loans on a regular basis after they were made. Management also kept a close eye on clients for signals of potential issues, such as declining business conditions, covenant violations, and late payments. A loan application that was turned down in early 2020, Jimit Patel, an account manager assigned to the southern India area, presented a credit application for Far East Trading Corporation (FETC), a corporation with major business interests in Bihar, for a ₹11 lakh, seven-year term loan. A 1% closing charge and a variable rate of 5% above prime lending rate were included in the pricing of loan. Inventory was used to fully secure the loan. Because of the size of the loan, Jimit took great care in evaluating and assessing the application. He liked it: "I thought this was a wonderful offer for Happy Living," he said. We were going to make good money during the life of the loan because I priced it with a relatively wide spread. FETC is a reputable organisation that has been around for a long time and has a knowledgeable management team. Despite the current economic downturn, they have discovered good commercial prospects. As a result, I came to the conclusion that the loan was quite low risk. The loan was immediately accepted by the Branch's Credit Committee, which Jimit was not a member of Committee members remarked at the time that Jimit's application was well-prepared, and that they trusted Jimit's judgements on the deal's merits. Jimit was one of the more experienced account managers on the team. Before joining Happy Living's Jharkhand branch, he worked for two big Indian banks for long years. The application had to be authorised by the Corporate Credit Committee in Madhupuri because the loan's proposed value exceeded ₹5 lakh. Jimit participated in part of the corporate committee meeting by telephone. Jimit was questioned by the committee members, who sought answers as well as more information. Jimit believed he had successfully answered all of the inquiries. However, Jimit and Shukla were informed a few days later that corporate had opted against making the loan. The issue, according to the committee spokesman, was not with Jimit's analysis or the loan terms. Certain members of the Credit Committee were concerned because they had learned that FETC was involved in some transfer pricing conflicts with the tax authorities. These disagreements could result in lengthy legal fees, possibly substantial fines, or a costly settlement. When it came time to vote on this application, a majority of the committee members decided to err on the side of caution because they couldn't confirm the claims and didn't know if the legal settlements, if any, would affect FETC's ability to meet its cash flow requirements. Evaluate Happy Living Bank's system and justify your comments: Did Jimit Patel do a good job and what would your observation of Jimit?