Introduction:

Barclays GRCB business has built a strong franchise in India over the
past two-and-a-half-years with over 9 lakh clients and customers.
The case deals with the latest initiative taken by Barclays Global Retail
and Commercial Bank (GRCB) India in offering their customers of
business loans, lowered interest rates during the later part of their
repayment if they make regular repayment of their EMIs during the
initial repayments.
Barclays GRCB India's Consumer Banking Director, Suvrat Saigal is
confident that the unique Drop Down Feature would encourage
customers to make timely repayment of their EMIs.

Q.1: Will Drop Down feature encourage customers to avail the

Barclays business loans? Explain.
Drop Down Feature: The Barclays bank offers its customers of business
loans a competitive interest rate for the initial year of repayment.
Further the customer who is regular in repayment of EMIs will get a
fixed percentage reduction in interest rate. A further reduction in
interest rates will take place for another 12 months of regular
repayment of EMIs. This rate will then become the interest rate for the
remaining tenure of the loan. The drop down feature is designed
keeping in mind the customer of business loans at Barclays.
The drop down feature required that customers make regular
repayment of EMIs, which is a good aspect as it is in turn give benefit
to them who would get reduced interest rates on gradual basis.
Customers would not feel the burden of repayment if they make
regular payment of their EMIs.
Business customers always look for some added advantage in
financial dealings for having an upper hand over their competitors.
Through this feature, they would get an added advantage of reduced
interest rate. This in turn is helpful to them in availing loans at cheaper
rates and thus gains an upper hand over their competitors.

With having all other financial service providers offering a fixed rate of
interest, Barclays business loans give customers an added advantage
of reduced interest rates. Thus, the drop down feature would definitely
encourage customers to avail Barclays business loan as compared to
any other business loans available in market.
Q.2: As the interest rates will go down for regular EMI payer,
will this strategy be profitable for the Barclays? Give suitable
reasons to support your answer.
Now a days, most banks are facing the dilemma of credit risk. Banks
provide loan to customers on basic foundation but after initial
repayments customers starts delaying their EMIs, which on a
continuous basis results into defraud in payment of loan in several
cases. If these things happen with more customers, banks face trouble
of liquidity risks.
The strategy adopted by Barclays would be helpful to minimize credit
and liquidity risk, as the customers will be encouraged to repay their
EMIs on timely basis. Thus, the bank will be able to have sufficient
funds on time.
One more interesting reason is that the interest rate which the bank
charge is for their security of their loans and the benefit they receive
as they are bearing a risk of default from customers. So, if consumers
repay the EMIs on time there is no harm in lowering interest rates as it
would not affect the profitability of the bank.
Also with lowering of interest rates by offering Drop Down Feature will
encourage other business loans customers and thus enabling the bank
to have greater market share, which ultimately increases the
profitability of the bank.

Q.3: Explain the advantages and disadvantages of this 'Drop

Down Feature' for Barclays.
The advantages and disadvantages of the 'Drop Down Feature' for
Barclays are as follows:

Advantages
Reduce in defaults.
Way out to liquidity risk.
Competitive advantage by
having greater market share.
Resolution of credit risks.
Manageable interest rates
for
different
customers
profile.

Disadvantages
Differential
structure
of
interest rates for business
loans may create ambiguity
in minds of customers.
Having
more
no.
of
customers may increase the
no. of defaults.
If Barclays will not be able to
attract larger market share,
it may affect the profitability
of the bank.

Q.4: Will this strategy encourage competition in the banking

sector? Explain.
Banks need to continuously offer innovative products and services in
order to survive and differentiate themselves from other banks. Having
diversified products in their product portfolio ensures high profitability
and relatively low defaults in repayments.
The Barclays Drop Down Feature is definitely a strategic move to offer
unique service in order to differentiate oneself in the cut-throat
competitive scenario in banking sector. This strategy would surely
encourage competition in the retail banking sector as other
competitors would also come up with other unique service offerings for
having lowered interest rates to attract customers.
Other banks may also offer Drop Down Feature with slight
modifications in order to retain their customer base and attract new
business loan customers.
By looking at Barclays unique offering, other banks will also trying to
differentiate themselves by offering unique services. Thus, the strategy
will surely encourage competition in banking sector.

IBS NAGPUR
Retail banking
Continual Evaluation

Written Analysis
of the article

Barclay lowers int rates for regular EMI payee

Press Trust of India / Mumbai October 14, 2009, 13:41 IST

Submitted By

MUFADDAL HUSSAIN
IUD Enrollment No: 08PMP02222
IBS Enrollment No: 08BS0001799
MBA-class of 2010, Semester IV

Submission Date: Friday, October 23, 2009