SahanaIFMR Chennai

Banking Industry in India◦ India to be 5th largest consumer economy with aggregate

consumption expected to grow to 1.53 trillion USD in 2025. [1]

◦ Middle class segment rising

◦ 80% of business controlled by Public Sector Banks

◦ In emerging markets, banking reaches about 37%of the population, compared to a 50% penetration rate for mobile phones. [1]

◦ The Return on Equity for the banking sector has been around 13% in the last four years with top performing banks having 18-20% as RoE.

◦ According to research by Reich and Sasser (HBR) 5% increase in customer retention can increase profitability by 35% in banking buisiness, 50% in insurance buisiness

Source: http://www.ibef.org/industry/banking-india.aspx

Industry Growth Drivers

Rural Banking in India

Statistics state that only 37% of bank branches of Scheduled Commercial Banks are in rural areas with only around 40% of the population holding bank accounts. [2]

Only 5% of the 600,000 village habitations in the country have a commercial bank branch

Only 40% of the population have bank accounts

Debit card holders constitute only 13% of the population and only 2% have a credit card

Only 13% of farm households are availing loans from the banks in the income bracket of < Rs. 50,000.

51.4% of nearly 89.3 million farm households do not have access to any credit either from institutional or non-institutional sources.

Online BankingCustomers access e-banking services using an intelligent electronic device, such as a personal computer, personal digital assistant, automated teller machine, Touch tone telephone.• Cost effective solution.• Enables the bank to reach

its customers on the net.• Reduce rush at the

counters of the bank.• Enables the customers of

the bank to access information from anywhere and at any time.

• Balance and transaction history search

• No more Queues• Growth:

EY:Banking on Technologies

Source: Indian Research Journal- Ebanking : The Indian Scenario by Dr. Roshan Lal and Dr. Rajni Saluja

SWOT Branch Banking

• The banks financial positions grows at a rate of 20% every year which is a major positive sign for any bank

• Traditional banking: higher trust• Safety locker, Loans etc are preferred• Strong History and loyalty

• Since 2009, RBI has increased CRR by 100 basis points

• Increased repo rate reverse repo rate by 50 points – 11 times of late

• RBI allowed foreign banks to invest up to 74% in Indian banking

• Government schemes are most often serviced only by govern banks

• Online Banking is preferred by Gen Y• Robbery

• Expansion into rural areas• Security Locker user rates are

increasing• Small traders opt traditional Banking

• Fixed Operating Time• Liquidity problems• Customer has to visit the branch in person• Slow pace of operations are time

consuming• Document management is challenging

SWOT Online Banking• Competitive Advantage for economies of

scale• India is currently 4th largest user of internet• Internet banking users has increased from

9% in 2003 to 50% in 2010• Access anywhere, anytime: There are no

geographical barriers.• Personalized transaction report

• Security • Poor technology infrastructure• Ineffective risk measures• Easy Access of internet banking account by

wrong people through email ids• When the server is down the whole process

is handicapped• Traditionalists do not appreciate change :

IT Fatigue

• Expansion into rural areas• Rising Middle Class Sector in India• Rising population of Generation Y’s the

Tech Savvy Youth• Increased demand for financial products• Incentives offered by emerging E-

commerce and bill payments• Retail Boom • Technology leading to advanced products

and services

• RBI allowed foreign banks to invest up to 74% in Indian banking

• Government schemes are most often serviced only by govern banks

• Security Breaches : Hackers, Safety of present RSA algorithms etc.

Factors that influence customer behavior: Trust :

• Institutional Stability

• Customer Experience

• Fees and rates

• Word of mouth

• Security

Product ownership and Satisfaction Customer Care Services Convenience

Courtesy: EY Global Consumer Banking Survey (2014)

Customer Insights Based on Primary and Secondary research Security, face to face

interaction, Safety, uncomfortable with technology are main concerns of the customer on digital banking.

These concerns change with the demographics ( age, profession, education), geography of target sample.

Road MapCustome

r Segment

RURAL TOWNS URBAN

Segment Need

• Security Lockers• Credit Information• Financial Guide• Loans with low interest• Women empowerment

schemes• Insurance

• Loans• Credit Information• Retail banking• Ecommerce• Real Estate:

investment assistance

• Various other schemes

• Immediate payments• Payroll assistance for

multinationals• Tools to track

financial health• Online trading

assistance apps• Elderly generation:

Retirement plans

Differentiated

Offerings

• Fund IT related farming techniques Eg. State Bank of Mysore funded IT dairy farming

• Online Management of Dairy farms, Poultry farms etc.

• “Virtual Banker” : Offer online product guide using video conferencing services.

• Kisan Cards, Mobile SMS alerts

• Integrated wallet systems

• Locality based services

• Bill payments• Micro Business

accounts• Tax Calculator :

Assistance

• Security: Anti Money Laundering Systems

• Ecommerce discount coupons

• Online management tools for records, transaction pattern, Bill payments

• Online service request for door to door loan/insurance assistance

Delivery Devices

• Increase ATMs• Bill Payments through ATM:

Internet banking in ATM• Virtual Banker tools (used by

Dutsche Bank)• “Kisan Sabah’s” to increase Awareness among farmers about online banking (Village panchayat,, Friends Club, Rotract associations etc.)

• Virtual CFO/Bookkeeper services

• Online calculators/

• Virtual Safe deposits• Premium cards

memberships for small organizations

• Retirement plan online calculators and service guides

Road Map Virtual banker” is a collaboration tool that allows video

conferencing services between consumers in branches and remote bank advisors.

E.g. Nykredit(Denmark) implemented the remote personal advisors in June 2012 to meet the needs face to face interaction resulting in  customer satisfaction has increased by 7.5% over the past year, while employee satisfaction has also increased by 8.5%. ROI has also seen an improvement at an increase of 5% due to Direct Banking.[7]

Extensive connection with customers through : Mobile apps, Facebook, Twitter (Social Media)

Retail Purchase assistance : Messages about new offers in the nearest retail store by GPS enabled mobile app which scans for nearest marts and discount coupons offered by ING Vysya cards

Collaboration with travel agencies. (Make my trip, red bus, KSRTC etc)

Student plans: Online banking offers for students “Pocket money account”

Brand Ambassador programs for students as to market the brand image and provide customer insights on Digital marketing over social networking sites

Road Map Improving functional coverage. Improving usability experience. Analyzing customers for their behavior and banking habits. Analyzing customer’s profile and providing customized

offerings. Creating customer specific promotional schemes. Enhancing intra-channel and inter-channel customer experience. Providing value-additions over internet banking. Design products based on need of the life stage e.g age,

profession etc. Kitty party fund schemes/Chit fund: Home Makers of Urban

area/Rural area. “Online part time agents” for life insurance, loans etc : target

students, housewives looking for part time job, rural area talents etc.

Product Comparison Extensive marketing required for ING Vysya Bank HDFC/Axis bank etc offers discount coupons on online bill

payment, ecommerce etc. Payback points on credit, debit cards Personalized customer need based loans Some banks offer assistance in online trading (Demat

account) Few top banks have a separate unit taking care of loan and

insurance sector Zero processing fee advertised well in top banks online sites Calculators, Track your application number etc. offered as

online services by top banks. “Religious offerings” can be included by ING Vysya bank Virtual Tutor can be incorporated.

Summary The growth story of the Indian banking industry showcases vast

opportunity, and it is imperative to appreciate the attractiveness of this sector.

Today’s internet banking is speedily achieving the status of being an independent channel generating revenue.

Efforts of improving usability, presentation, functional coverage, enhancing supply chain components, extending transaction coverage for entire cycle or across geographies are relentless.

However improving customer experience uniformly across various channel; customer education and participation, customer profiling, enhancing customer relationship are vital in the growth of this channel.

Multiple parameters such as Functional and Transactional coverage customer centricity, Prospecting and leading conversion, Channel oversight, Organization support to channel, Multi-Channel servicing etc must be considered.

Bibliography[1] Banking Opportunities: Entry Strategy and the Road Ahead by PricewaterhouseCoopers (PwC) Pvt Ltd.

[2] Research paper on Retail banking in India Challenges and opportunities by Dr. Dinesh B. Raghuwanshi

[3] http://www.ey.com/Publication/vwLUAssets/EY_-_Global_Consumer_Banking_Survey_2014/$FILE/EY-Global-Consumer-Banking-Survey-2014.pdf

[4] Deutsche Bank Research on “Digital Economy and Structural Change” :

http://www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000196129.pdf

[5] http://www.computerweekly.com/news/2240207464/Technology-and-innovation-in-European-banks

[6] http://www.scienceandnature.org/IJEMS-Vol2(1)-Jan2011/IJEMS_V2(1)5.pdf : Kisan Credit Cards

[7] http://www.computerweekly.com/news/2240207464/Technology-and-innovation-in-European-banks

[8] http://www.capgemini.com/resource-file-access/resource/pdf/Digital_Transformation__A_Road-Map_for_Billion-Dollar_Organizations.pdf

[9] PRIMARY RESEARCH : Used Survey Monkey and word of mouth.

https://www.surveymonkey.com/s/QWMC3DR