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Banking Industry in India: A Backdrop and Changing Strategies

Dr Kala Krishnan

Performance of the banking sector is considered as a proxy for the economy as a whole, due to banks' wide spectrum of exposure across industries.

Unfortunately for India, the banking sector has historically remained under the impact of non-competitiveness, poor technology integration, high NPAs and grossly under productive manpower.

Earlier profitability gained only secondary importance, since banks lived in the comfort of a controlled environment. However, today banks cannot survive only on hopes of free support from the government, but set targets and evolve strategies to reach them.

There is certainly a paradigm shift in banking in India in the recent past. At present profitability, capital restructuring and transparency are considered important and significant for banks. Also, banks in India have started realising the need to be `customer focused' that in turn leads to `customer appreciation’, which is imperative for survival and growth.

The first change along this line was brought in by the foreign banks with their emphasis on high quality and efficient service combined with the technological advantages like satellite banking and tele-banking manned by skeletal staff and lesser number of branches.

Further, development of special manpower, innovative products, technology exploitation and personalised services play a crucial role in the banking industry today, since the customer has more options in choosing a bank. Thus leading to consumerism in the banking sector. Also, since customers are becoming more sophisticated and educated, their expectations from the neighbourhood bank are increasing.

The private banks wisely chose to use this opportunity to prepare for the future rather than scramble for current business. Many of them refocused their activities, seeking clearly defined identities in terms of services and customer segments.

To sum, the new private sector banks are poised to redefine banking in India. Though they do not pose a threat to the existing private banks they will certainly force them to gear up their strategies to remain in the field. This will lead to intense competition among the new banks, which would also serve as a challenge to the foreign banks.

Strategies: Changing Scenario

The last five years saw a sea change in banking strategies, with more focus on quality.

The adoption of a specialised customer-oriented focus is fast getting wider acceptability. In a market that keeps growing in depth and diversity, niche banking is the new mantra adopted by all. Thus, instead of targeting an entire market segment, banks have adopted a specific business focus to clearly reach their target audience.

The best banks' strategies:

(1) Increase volumes to compensate for declining interest rate spreads;

(2) Trim expenditure on provisions and contingencies, thus narrowing the gap between operating profits and net profits;

(3) Pare down operating expenses through organisational restructuring; and

(4) Adopt a clearly focused communication plan.

Some specific instances where banks have re-focused on their strategies:

v Indusind Bank is trying to reduce its overseas dependence for deposits and expand its domestic branch base

dramatically over the next three years. And, it will offer both niche and integrated services.

v ICICI Bank believes that, in India niche banking cannot be a winner.

v The essence of Citibank's corporate banking strategy is to go for big-ticket business only: big corporate clients, big

bucks. The result is low NPAs.

v Oriental Bank's (of Commerce) real strength is its profitable rural and semi-urban business base.

v Times Bank has positioned itself for exploiting opportunities in all areas. Times Bank's corporate plan involves the

pursuit of an aggressive strategy of equal thrust in both corporate and personal banking.

v Bank of America intends to continue its dual focus on wholesale and retail banking.

v Corporation Bank is targeting the burgeoning middle class through volumes.

v ANZ Grindlays is increasingly focusing on bringing its services to the customers' doorstep like `Home Loanz' etc.

Thus, today focus is more important than size in achieving success in the banking industry. The latest in technology, innovative retail products and personalised services are vital to carve out a niche in banking sector.

Over the last few years, the communication style too has changed with respect to the banking industry. Communication has shifted from branding the bank to branding banking products, highlighting service commitment, convenience, etc. Further, branding of banking products, such as home loans, consumer durable loans, tele banking, ATM's, net banking, etc. have started taking place, especially after the entry of foreign banks and private sector banks which had the advantage of the latest technology.