Retail banking

The banking scenario in India is at the crossroads and is continuously evolving, but the progress has been
remarkable over the past decade.

IT HAPPENED to me and it could have happened to you. The moment one enters a bank, one looks
for some assistance in our transaction. One expects to be served immediately or at the earliest. Quite
contrary to this, when one enters any bank, one would try to catch the eye of an employee. Depending on
the size of the bank, there will be any number of employees working unmindful of a customer's entry. With
the exponential growth of touch points and sophistication, the frontline salesforce is assuming the role of a
relationship person and is constantly under the microscopic observation of the customer. At a time when
channel innovation has become the order of the day to encourage effective banking habits among
customers, a vital component of the supply chain, namely, customer interface, is totally missing.

With the advent of liberalisation, the banking industry had made a head start towards the best banking
practices at each interaction point of the supply chain. However, the Indian landscape is not a replica of the
west and is in fact unique. Here is a look at the flipside of some of the common practices of Indian banks.

Multi channel distribution: The technological aggression has resulted in new modes of distribution of
banking products. Today consumers have various options to choose from. Banks are trying their best to
acclimatise customers to the new products and facilities in anticipation of reduced costs and ease of
operation and flexibility for the customers (A transaction costs Rs. 35-45 if done with physical presence of
the customer at a branch, Rs. 7 through a cheque and Rs. 2 on the Internet). These new creations have
resulted in different channels of distribution of banking products and services. The transaction simplicity
through these channels is drawing people to these banks, not just for banking products but for other
ancillary products such as payment of utility bills and insurance premium.

In India there are around 4,500 ATMs and if they continue to grow at the current pace, there will be around
35,000 by the end of the year 2005. The cash movement through ATMs is between Rs. 35,000 and Rs.
45,000 crores each year. So will the other channels grow along with ATMs? The moot question remains to be
answered, if they are managing interactions among channels as rigourously as they manage each channel in
isolation. [Congrats to GTB (multi channel integration) and ICICI Bank (migrating customer transactions to
low cost remote channels) for winning the micro banker award]. Whenever new channels are introduced,
such offerings should be integrated, indicating strategic use of channels to enhance customer information
and value. Hence for mere survival, banks need to think in terms of integrating the different channels that
are bound to grow with time.

Call centres (support services): Banks have picked up the nuances of getting closer to the ultimate
customer and separated the sales and service functions. With call centres, services are being offered by
stimulating customer interaction. The initiation of such call centre services was much appreciated but very
few changes have been effected since then and they are losing their efficacy. The model since inception
being the same, data are increasingly built around it. With such huge database, calls are being queued up,
causing irritation to customers due to high waiting time. Banks have two options before them.

(a) Change the model and develop call centres around customers (accessing different accounts of a
particular customer) instead of products per se. The objective then would be to dig up the information
across products and service them in a jiffy without much waiting time.

(b) With the help of technology banks can redefine the acceptable waiting time of callers (customers) before
they terminate the call for want of service from tele executives, towards improving the service levels of the
banks.

Technology: Technology underlies the above two features. This is taken to be the cutting edge among
banks and for real product differentiation the public and private players are becoming tech savvy. With
increasing emphasis on technology, banks try to leverage the good aspects of it and venture into new areas
of cross selling their products through various channels. The cost savings and the ease of effecting a
transaction through technology are increasingly recognised and are compelling banks to carry the same to
almost all the dimensions of banking. Incidentally, the more advanced the technology, the higher the cost
savings generated with much wider coverage resulting in quicker, cheaper and reliable service. However one
should not get lost in the maze of new technologies as statistics do not support the proposition of technology
aggression. (The number of people accessing Internet is 7 per 1000 people, Personal computers in use are 6
per 1000, cellular subscribers 6 per every 1000, Urban population 27.9 per cent of total population and this
will grow to 32.2 per cent by 2015). This reminds one of better channel synchronisation and integration but
not proliferation. Banks should allow the earlier facilities to sink into the culture of the customers before any
new facilities are launched. Also, the earlier facilities should be embedded with services so that customers
not only appreciate new technology, but are also in a position to operate.

Rural exposure: What is happening on the rural front? Why is there a reduction in the number of new bank
branches? Is it because the rural areas suddenly lacked in potential or they lacked in infrastructure for
banking in such areas. Looking at the statistics, the scenario seems to have changed drastically after the
Narisimham committee proposal in 1991. It has forced the philosophy of free markets and could successfully
circumvent the intentions of the Government about building a stable financial system unique to the Indian
economy.

The following matrix depicts the rural banking scenario on different parameters. Between March 1994 and
March 2000, the number of bank offices in rural areas (population below 10000) came down from 35,329 to
32,734, while the number of branches in semi-urban areas(population between 10,000 to 1,00,000) rose
from 11,890 to 14, 723. The figures have been going up in urban (population between one lakh and 10
lakhs) and metros (population above 10 lakhs) from 8,745 to 10,447 and 5,839 to 8,557 respectively.
However, around 98.5 per cent of the rural borrowers still look to informal financing with credit limits below
Rs. 2 lakhs. Today agricultural lending by commercial banks has almost equalled the outstanding personal
loans of rural consumers.

Road ahead

The branding of banks in India is not popular at least for now. Sooner or later it will assume importance and
it will be a pertinent question for banks to identify themselves in an otherwise messy market where the
products are pretty much the same. The motto will be to get more and more people involved in their
banking business and such a relationship will be hard to come by with plain vanilla products and services.
The banking scenario in India is at the crossroads and is continuously evolving, but the progress has been
remarkable over the past decade. Without much leeway in the avenues for operations, the true challenge for
the banks is to stand out in the midst of hard-hitting regulations of the apex body. Globalisation,
consolidation and want of expertise are drastically redefining the banking taxonomy. Companies will surely
be looking forward to seeking leadership and experienced management talent to deal with these challenges.

http://www.hindu.com/biz/2004/01/12/stories/2004011200491600.htm