"Profit is a requisite, not a purpose of business. The purpose of a business is to create and keep a customer." - Dr. Theadore Levit of Harvard Business School in his book "Marketing Imagination"
The Indian banking sector has evolved into a robust banking system, emerging as one of the strong pillars of stability and growth in the Indian economy over the past decade. The banking sector is considered the backbone of the economy and supports the Nation's growth. As emerging technologies and innovative channels continue to transform the banking industry, the bank's role as stakeholders in transformation will be to anticipate and gear up the banking system for future opportunities and challenges. In order to become a world-class bank, the banks have to focus on the following and execute appropriate strategies to achieve the set goals.
Tapping the New Avenues:
The landscape for banking products and services is expected to undergo a major overhaul in the future as various factors such as increased competition, financial inclusion, growth in high-net-worth individuals (HNIs) transform the entire spectrum of banking products and services. While technology is expected to help banks lower transaction costs, innovation in products and services which can be integrated with technology will be the focus of the banks in the future. Banks will have to face the challenge of building viable customer-centric models, keeping in mind the diversity in customer demography inside and outside the nation.
Winning the Competition:
With the regulators permitting the entry of new era private sector banks and foreign Banks, the competition in the Banking industry is expected to become fierce in the near future. Hence, the Banks will have to address contrasting challenges of expanding their reach as well as rising competition in the coming decade for the share of the wallet of the customers. Planning for the strategies for eventual implementation to attract new customers and retain the existing customers is the core priority for the Banks, now.
Major Growth Drivers:
The major growth drivers for the Banks in the coming years will be inclusive banking, infrastructure financing, and MSME financing. The banks will have to use a combination of channels including branch and branchless banking for reaching a large number of potential customers.
Enabling Financial inclusion:
Financial Inclusion is the process of ensuring access to appropriate financial products and services needed by all sections of the society in general, and vulnerable groups such as weaker sections and low-income groups in particular, at an affordable cost in a fair and transparent manner by regulated mainstream institutional players. It is aimed to provide banking services to all the 6 lakh villages and meet their financial needs through basic financial products.
Financial inclusion is a potentially viable business proposition for the Banks because of the huge untapped market that it seeks to bring into the fold of banking services. Financial inclusion prima facie needs to be viewed as ‘money at the bottom of the pyramid' and business models should be so designed that the services provided should be at an affordable cost.
Shifting the Focus:
Today's business environment is mainly market-driven and the needs of the people should be given prime importance while designing a financial product. The ‘one size fits all' approach will not work out in technology-driven banking.
The traditional "Product, Place, Price and Promotion" model has to be replaced with the "Solution, Access, Value and Education" model, (SAVE) for the effective marketing of the products.
• Product to be replaced by Solution:
The customer should get the solution to fulfill his needs to the maximum
• Place to be replaced by Access:
The customer should have easy accessibility to the products through the alternate channels
• Price to be replaced by Value:
The customer should get the value for the money he pays for the product
• Promotion to be replaced by Education:
The end-user (customer) should be properly educated on the utilities of the product, which in turn will automatically get advertised through him.
Hence, the product development has to be customer-centric and the Banks should always keep the preferences of the customer in mind while designing the products. Customer segmentation and respective strategies will help the banks for organic growth in the business.
Niche areas of Banking:
The most important growth lies in infrastructure financing. Such spending will boost revenues through lending, debt syndication, capital raising, and secondary markets. Recent reforms in the financial market, such as the introduction of Credit Default Swaps (CDS), are likely to provide further impetus to lending to the corporate sector. The management of the Banks should ensure that adequate skills are made available to meet the challenges.
Another area of focus will be financing the Micro, Small, and Medium Enterprises (MSME) segment. This will improve the competence levels of our entrepreneurs and fetch them a place in the global market. This in turn will enable the banks to grow exponentially! In this regard, the following strategies are suggested.
- Annual Target fixing for the growth in MSME credit.
- Setting up of specialized branches for MSME.
- Providing tailor-made products for MSME
Further, Retail Asset financing provides abundant potential for growth. It paves ways for immense scope for product innovation and diversification. It enhances the cross-selling of products and provides a cost-effective alternative for customer acquisition. Mortgage products show steady growth in this segment. Wealth management is another key financial service which is expected to grow significantly in the coming days. The banks should innovate and provide financial instruments for the HNIs such as the online opening of Savings Accounts, Wealth Management Advisory services, etc., to acquire a fresh business.
Technology, the enabler:
The economy and environment are linked to technology which promotes prosperity to society. The banks have to use innovation to render good customer service. There are also a number of key strategic initiatives needed to leverage technology as well as effectively transform the banking system. Interoperability across platforms and channels is one of the key steps that is needed to improve the banking modus operandi. Further, the banks should focus especially on the Information Security aspect to avert the possible Cyber frauds which lead to loss of customer confidence. Conducting regular awareness programmes for staff is an essential ingredient to achieve this.
The banks operate with a new range of products and services through green- banking initiatives, electronic services, credit cards, and portfolio management for HNIs and corporate customers. Maximizing the use of alternate channels will reduce the transaction cost, provides convenience to the customers, and frees the bank staff to focus on more productive activities. The banks should focus on capturing a large part of the business from each one of the customers using the latest technology platforms and provide customized solutions to customers.
The five alternative channels for transactions - ATM, Internet, mobile, call center, and POS have been put to use and are poised for rapid development in terms of depth of penetration and quality of service. These new channels would enhance the banks' productivity by reducing the transaction cost, increasing the opportunities for cross-selling, and increasing the new client acquisitions.
The touchstone of any successful business lies in the edict that "Customer is the King". Going forward, the banking system will continue to face a challenging environment given that its fortunes are closely linked to the capability of meeting customer needs. Reliability, empathy, and responsiveness should be the bywords to improve the quality of service in the banks. The challenge for the banks will be to develop new products and delivery channels that meet the evolving needs and expectations of its customers.
Customer segmentation will emerge as the key tool for product innovation and improved CRM in banking. The banks have to segregate their product design and services based on income, location, age, and preferences. While the Tech-Savy younger generation may not prefer to visit the bank's branches, the older lot will prefer to visit the branches personally. The former has to be given some incentive for not coming to the bank while the latter has to be charged as they are engaged in the branch premises.
Further, streamlining the system for quick delivery of credit will enhance the customer satisfaction level. A satisfied customer will be a free brand ambassador for the Bank.
Bringing in collaborative leadership:
Simply talking about building teams, working as a team will not yield the desired results; but, the ‘experience' of teamwork should be brought out. This can be achieved through collaborative leadership. It is about working together and sharing knowledge, ideas, and thoughts to achieve a common goal. The leader uses the synergetic relationship between the team members to create a better organization, which empowers the team to improve its productivity. Every leader's task is to ensure that the entire team is aligned towards the same set of goals, which are in sync with the organization's needs. Hence, the leader has to display exceptional execution skills while heading the business verticals
Strengthening the Preventive Vigilance
Vigilance is not an investigation but it is the prevention of frauds and is often linked to security. It is a tool for management to protect the organization from internal dangers which are more serious than external threats. A proper preventive vigilance mechanism restrains the acts of wrongdoing and misconduct of insiders in the functioning of the bank. Preventive vigilance is more effective than punitive vigilance.
Complaints - Mirror of performance!
Complaints are the indicators of the performance of any organization. Complaints should be given immediate attention and the banks should have an effective and efficient grievance-redressal system to address the issues.
The banks should have resolutions for the following problem areas.
- Complaints received against the employees of the Bank
- Reports of irregularities in accounts detected in the audits
- Complaints and allegations appearing in the press
- Deficiency in following the systems and procedures of the Bank and
- Intelligence gathered by agencies like CBI, local bodies, etc.
Compliance, the savior:
The regulatory environment in which banks in
Announcing more legislations will not yield the expected result if they are not properly implemented. The end goal is not in meeting the corporate governance norms, but build lasting competitive strengths and enhancing the business performance. By proper usage of technology, the business strategies should be accomplished and there should not be any room for complacency.
Secondly, the growing global emphasis on fair treatment to customers, financial inclusion and improved Know Your Customer practices will require banks to reorient their business models and their data and information systems. This will ensure the banks to minimize the loss on account of Anti-money-laundering.
Periodical review of the compliances and taking appropriate steps will improve the governance for better functioning of the Banks in the future.
Risk Tolerance and NPA management:
The need of the hour is to take steps to upgrade the risk identification, management, and pricing abilities. A risk management framework is incomplete without an effective system of internal controls and methodologies. Hence, the right balance between the business units and risk management, both in times of stress and in good times be taken.
In order to ensure the quality of the asset as standard, there should be a continuous supervising mechanism on the quality of loan assets. The deterioration in the quality of assets makes them Non-performing asset, which in turn pull down the profitability of the banks as they do not earn anything from these assets. Further, the banks have to make provisions on these NPA accounts. Hence, the banks should use all the available legal tools for recovery, including enforcement through the SARFAESI Act, DRT, Permanent Lok-Adalats, etc. to recover the dues from the recalcitrant borrowers. This in turn improves the creditworthiness of the Banks in international markets.
From the regulatory perspective, the banks are expected to understand the business activities of their customers so that they do not, inadvertently, end up being conduits for illegal activities such as terrorism, frauds, hawala transactions, etc. From the business perspective, "Know Your Customer, Know Your Customers' Business and Know Your Customers' Business Risks" are important for understanding the nature of the customer's business, which would help the banks in offering suitable products, managing credit exposure, and generating early warning signals for potential delinquency risks. This will help to maximize the commercial gains from the customer relationship.
The Power of Human Resources:
The banking industry is one of the largest employers of talent in the country. In any organization, people are the force that makes the difference between success and failure. When the market has a number of players with broadly similar product offerings, the competence of the employees could be the clinching factor to gain an edge over the rivals.
As the employees are the main ingredient of the quality of the organization, the Management should take all-around efforts to continuously improve the quality and skills of the employees. The sustainable competitiveness of a Services enterprise lies in only appreciating assets, which are their people. A system of rewarding the employees who have achieved the set targets will not only boost the morale of the awarded employees but also motivate others to perform better in the following years. Ultimately, the organization will be benefited!
Streamlining the succession:
The Indian economy will be growing younger in the near future! In 2020, the average Indian is only 29 years old, when compared with 37 in China and the US, 45 in West Europe, and 48 in Japan. 65% of our population will be in the working-age group, and this age advantage for India is expected to continue for at least three decades till 2040. Hence, the banks should give top priority to equip the young employees with suitable skill-development packages on an ongoing basis, for sustained competitiveness.
"If you focus on results, you will not change; but if you focus on changes, you will get results!"
We are all living in exciting times - times that offer as many opportunities as it offers challenges! One needs to look at the opportunities available and also seek to strengthen the systems and processes by institutionalizing the lessons learned during the past.
A Banker has to be sincere and thoughtful to the customers. Sincerity creates confidence. This is the most important reason for a customer to do business with the bank and call it a "preferred bank". Banks have to realize that it is not customer acquisition, which is important, but their retention is more important. Hence, they have to constantly improve its customer service to achieve and retain this credit.
Integrating the people, process, strategy, technology, and knowledge in a proper mix will not only improve the competence of any Bank but also improve the customer satisfaction levels to a great extent. The Bank has to ensure that every employee is empowered to walk the extra mile to ensure that the present banking system acquires the necessary escape-velocity to catapult itself to the new orbit of success!