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Retail Banking Strategy


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Retail Banking Strategy

  2. 2. Retail Banking Sector 2 Acknowledgement First, we thank Mr. K. Rajasekaran, for his continuous support to enable me to complete my project. Mr. K. Rajasekaran was always there to listen and to give advice. He showed us different ways to approach to this research problem and the need to be persistent to accomplish any goal. Sir has provided with all the helpful suggestions for the accomplishment of this project report. We are also greatly indebted to Ms. Nguyen Minh Hau - Interbank Staff, Techcom bank - Vietnam for providing information and who gave insightful comments and reviewed my work on a very short notice A special thanks goes to Mr. Jay Shah – Marketing Executive, ICICI bank for his valuable efforts by providing helpful information as and when needed. Sincere efforts have been made to work interesting and studding. However, we welcome helpful suggestions. Ahmedabad 7th Jan, 2006 Jaydip Rawal Theju Paul
  3. 3. Retail Banking Sector 3 Contents Executive Summary.........................................................................................................4 Retail Banking................................................................................................................ 4 Best Practices in Retail Banking Sector............................................................................ 4 Significance of Product Innovation in Retail banking sector .....................................5 Retail banking in India .....................................................................................................7 Drivers of retail business in India ..................................................................................... 7 Opportunities and Challenges of Retail Banking in India ........................................10 ICICI, India......................................................................................................................12 Retail Banking in ICI CI..................................................................................................13 Key focus areas which need to be examined..................................................................14 ICICI Bank’s Mega Issue...............................................................................................19 Technology led initiatives ..............................................................................................20 Wells Fargo, USA...........................................................................................................21 Retail banking strategies ...............................................................................................21 Techcom Bank, Vietnam...............................................................................................26 Retail banking Strategy.................................................................................................27 The Excellence in Retail Financial Services..............................................................28 Top 5 Imperatives for Banks (Infosys Banking Domain Competency Group) ...................29 Conclusions & Recommendations ..............................................................................34 Appendix..........................................................................................................................36 Wells Fargo - Balance sheet.........................................................................................36 Techcom – Balance Sheet ............................................................................................37 ICICI – Balance sheet ...................................................................................................38
  4. 4. Retail Banking Sector 4 Executive Summary Retail Banking Retail banking is, however, quite broad in nature - it refers to the dealing of commercial banks with individual customers, both on liabilities and assets sides of the balance sheet. Fixed, current / savings accounts on the liabilities side; and mortgages, loans (e.g., personal, housing, auto, and educational) on the assets side, are the more important of the products offered by banks. Related ancillary services include credit cards, or depository services. Today’s retail banking sector is characterized by three basic characteristics: • Multiple products (deposits, credit cards, insurance, investments and securities); • Multiple channels of distribution (call centre, branch, Internet and kiosk); and • Multiple customer groups (consumer, small business, and corporate). Best Practices in Retail Banking Sector The financial services industry has been widely recognized as a leader in customer intimacy. Retail banks in particular are often praised as pioneers in deploying best-in-class strategy and technology to develop profitable customer relationships. Much of this progress has been built on gaining insight into customer value and then using this insight for strategic and tactical decision making. Companies that have demonstrated a consistently high level of performance over time tend to share the attribute of successful innovation within one of these characteristics and often within more than one. It is no different in the financial services industry. The latest competitive schemes in the banking industry tend to exhibit innovation in “place” in the form of distribution channels or “price” in the form of relationship pricing or individual product pricing. The large banks have invested great sums in technology and statistical analysis to develop more effective promotional skills. With the explosion of new channel options over the past decade financial institutions have appropriately invested heavily in delivery channel innovation, In this report, we have tried to explore the state of art in product development in the world retail banking sector. Information was drawn from the three top banks in di fferent developing countries, supplemented by in-depth interview/emails from these banks. We are also trying to explore the potential new directions in product innovation. 1
  5. 5. Retail Banking Sector 5 Significance of Product Innovation in Retail banking sector Innovation can be broadly defined as the process of developing and implementing ideas to improve customer experience, with the ultimate goal of enriching the company’s value proposition as seen by its current and future customer loyalty, retention and shareholder return. Innovation can be achieved in any or all of the following areas: • Product, • Service, • Channel, and • Pricing To compete successfully in the future, retail banks need to offer a superior customer experience across all interactions with the bank. Bank have been aggressive deployers of new self-service technologies to improve access and increase convenience while reducing expenses by moving transactions from expensive branches to lower cost telephone or web based channels. Consumers have enthusiastically adopted the new channels that offer convenient 24/7 access to their money and account information 2
  6. 6. Retail Banking Sector 6 Product innovation has historically had a limited impact on the consumer banking market, which has long been characterized by commoditized products. The role of product innovation has been limited to incremental changes to existing products. Considering the definition of product, electronic bills presentment and payment (EBPP) possibly represents the first successful new product in over 30 years. Following exhibit out lines the chronology of important regulations, product innovations, technology and distribution channel events over the past 40 years. Many product innovations have been influenced by changes in regulation, which in turn change the balance of market and competitive forces. Innovations in distribution channels have principally been driven by advances in technology.
  7. 7. Retail Banking Sector 7 Retail banking in India Retail banking in India is not a new phenomenon. It has always been prevalent in India in various forms. For the last few years it has become synonymous with mainstream banking for many banks. The typical products offered in the Indian retail banking segment are housing loans, consumption loans for purchase of durables, auto loans, credit cards and educational loans. The loans are marketed under attractive brand names to differentiate the products offered by different banks. As the Report on Trend and Progress of India, 2003-04 has shown that the loan values of these retail lending typically range between Rs.20,000 to Rs.100 lakh. The loans are generally for duration of five to seven years with housing loans granted for a longer duration of 15 years. Credit card is another rapidly growing sub-segment of this product group. In recent past retail lending has turned out to be a key profit driver for banks with retail portfolio constituting 21.5 per cent of total outstanding advances as on March 2004. The overall impairment of the retail loan portfolio worked out much less then the Gross NPA ratio for the entire loan portfolio. Within the retail segment, the housing loans had the least gross asset impairment. In fact, retailing make ample business sense in the banking sector. While new generation private sector banks have been able to create a niche in this regard, the public sector banks have not lagged behind. Leveraging their vast branch network and outreach, public sector banks have aggressively forayed to garner a larger slice of the retail pie. By international standards, however, there is still much scope for retail banking in India. After all, retail loans constitute less than seven per cent of GDP in India vis-à-vis about 35 per cent for other Asian economies — South Korea (55 per cent), Taiwan (52 per cent), Malaysia (33 per cent) and Thailand (18 per cent). As retail banking in India is still growing from modest base, there is a likelihood that the growth numbers seem to get somewhat exaggerated. One, thus, has to exercise caution is interpreting the growth of retail banking in India. Drivers of retail business in India What has contributed to this retail growth? Let me briefly highlight some of the basic reasons. First, economic prosperity and the consequent increase in purchasing power has given a fillip to a consumer boom. Note that during the 10 years after 1992, India's economy grew at an average rate of 6.8 percent and continues to grow at the almost the same rate – not many countries in the world match this performance. Second, changing consumer demographics indicate vast potential for growth in consumption both qualitatively and quantitatively. India is one of the countries having highest proportion (70%) of the population below 35 years of age (young population). The BRIC report of the Goldman- 3
  8. 8. Retail Banking Sector 8 Sachs, which predicted a bright future for Brazil, Russia, India and China, mentioned Indian demographic advantage as an important positive factor for India. Third, technological factors played a major role. Convenience banking in the form of debit cards, internet and phone-banking, anywhere and anytime banking has attracted many new customers into the banking field. Technological innovations relating to increasing use of credit / debit cards, ATMs, direct debits and phone banking has contributed to the growth of retail banking in India. Fourth, the Treasury incom e of the banks, which had strengthened the bottom lines of banks for the past few years, has been on the decline during the last two years. In such a scenario, retail business provides a good vehicle of profit maximization. Considering the fact that retail’s share in impaired assets is far lower than the overall bank loans and advances, retail loans have put comparatively less provisioning burden on banks apart from diversifying their income streams. Fifth, decline in interest rates have also contributed to the growth of retail credit by generating the demand for such credit. In this backdrop let me now come two specific domains of retail lending in India, viz., (a) credit cards and (b) housing. Credit Cards in India While usage of cards by customers of banks in India has been in vogue since the mid-1980s, it is only since the early 1990s that the market had witnessed a quantum jump. The total number of cards issued by 42 banks and outstanding, increased from 2.69 crore as on end December 2003 to 4.33 crore as on end December 2004. The actual usage too has registered increases both in terms of volume and value. Almost all the categories of banks issue credit cards. Credit cards have found greater acceptance in terms of usage in the major cities of the country, with the four major metropolitan cities accounting for the bulk of the transactions. In view of this ever increasing role of credit cards a Working Group was set up for regulatory mechanism for cards. The terms of reference of the Working Group were fai rly broad and the Group was to look into the type of regulatory measures that are to be introduced for plastic cards (credit, debit and smart cards) for encouraging their growth in a safe, secure and efficient manner, as also to take care of the best customer practices and grievances redressal mechanism for the card users. The Reserve Bank has been receiving a number of complaints regarding various undesirable practices by credit card issuing institutions and their agents. Some of them are: • Unsolicited calls to members of the public by card issuing banks/ direct selling agents pressurizing them to apply for credit card. • Communicating misleading / wrong information regarding credit cards regarding conditions for issue, amount of service charges/ waiver of fees, gifts/prizes. • Sending credit cards to persons who have not applied for them / activating unsolicited cards without the approval of the recipient. • Charging very high interest rates /service charges. • Lack of transparency in disclosing fees/charges/penalties. Non-disclosure of detailed billing procedure. The Working Group deliberated a number of major issues relating to: a) to customer grievances and rights: a) Transparency and Disclosure, b) Customer Rights Protection, and c) Code of Conduct. The Group recommended that the Most Important Terms and Conditions should be highlighted and advertised and sent separately to the prospective customer. These terms and
  9. 9. Retail Banking Sector 9 conditions include various issues relating to: a) fees and charges, (b) drawal limits, (c) billing, (d) default, (e) termination / revocation of card membership, (f) loss / theft / misuse of card, and (g) disclosure. These recommendations are being processed within the RBI and a set of guidelines would be issued which are going to pave the path of a healthy growth in the development of plastic money in India. The RBI is also considering bringing credit card disputes within the ambit of the Banking Ombudsman scheme. While building a regulatory oversight in this regard we need to ensure that neither does it reduce the efficiency of the system nor does it hamper the credit card usage. Housing Credit in India In view of its backward and forward linkages with other sectors of the economy, housing finance in developing countries is seen as a social good. In India, growth of housing finance segment has accelerated in recent years. Several supporting policy measures (like tax benefits) and the supervisory incentives instituted had played a major role in this market. Housing credit has increased substantially over last few years, but from a very low base. During the period 1993-2004, outstanding housing loans by scheduled commercial banks and housing finance companies grew at a trend rate of 23 per cent. The share of housing loans in total non- food credit of scheduled commercial banks has increased from about 3 per cent in 1992-93 to about 7 per cent in 2003-04. Recent data reveal that non-priority sector housing loans outstanding as on February 18, 2005 were around Rs. 74 thousand crore, which is, however, only 8.0 per cent of the gross bank credit. As already pointed out, direct housing loans up to Rs. 15 lakh irrespective of the location now qualify as priority sector lending; housing loans are understood to form a large component of such lending. In addition, housing credit is also being provided by housing finance companies, which in turn are also receiving some bank finance. Thus, from miniscule amounts, the exposure of the banking sector to housing loans has gone up. Unlike many other countries, asset impairment on account of housing finance constitutes a very small portion. However, with growing competition in the housing finance market, there has been a growing concern over its likely impact on the asset quality. While no immediate financial stability concerns exist, there is a need to put in place appropriate risk management systems, strengthen internal control procedures and also improve regulatory oversight in this area. Banks also need to monitor their exposure and the credit quality. In a fiercely competitive market, there may be some temptation to slacken the loan scrutiny procedures and this needs to be severely checked. Having delineated the broad contours of retail banking in India let me now come to its opportunities and challenges.
  10. 10. Retail Banking Sector 10 Opportunities and Challenges of Retail Banking in India Retail banking has immense opportunities in a growing economy like India. As the growth story gets unfolded in India, retail banking is going to emerge a major driver. How does the world view us? I have already referred to the BRIC Report talking India as an economic superpower. A. T. Kearney, a global management consulting firm, recently identified India as the "second most attractive retail destination" of 30 emergent markets. The rise of the Indian middle class is an important contributory factor in this regard. The percentage of middle to high income Indian households is expected to continue rising. The younger population not only wields increasing purchasing power, but as far as acquiring personal debt is concerned, they are perhaps more comfortable than previous generations. Improving consumer purchasing power, coupled with more liberal attitudes toward personal debt, is contributing to India's retail banking segment. The combination of the above factors promises substantial growth in the retail sector, which at present is in the nascent stage. Due to bundling of services and delivery channels, the areas of potential conflicts of interest tend to increase in universal banks and financial conglomerates. Some of the key policy issues relevant to the retail banking sector are: financial inclusion, responsible lending, access to finance, long-term savings, financial capability, consumer protection, regulation and financial crime prevention. What are the challenges for the industry and its stakeholders? First, retention of customers is going to be a major challenge. According to a research by Reichheld and Sasser in the Harvard Business Review, 5 per cent increase in customer retention can increase profitability by 35 per cent in banking business, 50 per cent in insurance and brokerage, and 125 per cent in the consumer credit card market. Thus, banks need to emphasize retaining customers and increasing market share. Second, rising indebtedness could turn out to be a cause for concern in the future. India's position, of course, is not comparable to that of the developed world where household debt as a proportion of disposable income is much higher. Such a scenario creates high uncertainty. Expressing concerns about the high growth witnessed in the consumer credit segments the Reserve Bank has, as a temporary measure, put in place risk containment measures and increased the risk weight from 100 per cent to 125 per cent in the case of consumer credit including personal loans and credit cards (Mid-term Review of Annual Policy, 2004-05). Third, information technology poses both opportunities and challenges. Even with ATM machines and Internet Banking, many consumers still prefer the personal touch of their neighborhood branch bank. Technology has made it possible to deliver services throughout the branch bank network, providing instant updates to checking accounts and rapid movement of money for stock transfers. However, this dependency on the network has brought IT department’s additional responsibilities and challenges in managing, maintaining and optimizing the performance of retail banking networks. Illustratively, ensuring that all bank products and services are available, at all times, and across the entire organization is essential for today’s retails banks to generate revenues and remain competitive. Besides, there are network management challenges, whereby 4
  11. 11. Retail Banking Sector 11 keeping these complex, distributed networks and applications operating properly in support of business objectives becomes essential. Specific challenges include ensuring that account transaction applications run efficiently between the branch offices and data centers. Fourth, KYC Issues and money laundering risks in retail banking is yet another important issue. Retail lending is often regarded as a low risk area for money laundering because of the perception of the sums involved. However, competition for clients may also lead to KYC procedures being waived in the bid for new business. Banks must also consider seriously the type of identification documents they will accept and other processes to be completed. The Reserve Bank has issued details guidelines on application of KYC norms in November 2004.
  12. 12. Retail Banking Sector 12 ICICI, India ICICI Bank Ltd is India’s largest private sector bank. ICICI Bank has capitalized on the emerging retail opportunity in India with innovative products, parity pricing, customer convenience, wide distribution, strong processes, prudent risk management, and customer focus. Keeping with its pioneering initiatives continued to create milestones in the areas of technology, retail market leadership and customer service. Armed with a network spread over 563 branches across the country and over nine countries in the world. ICICI Bank is the largest consumer credit provider in the country with over 13 million customer accounts ICICI bank has emerged on an incremental basis as a market leader in retail credit across a spectrum of financial products, including retail loans, credit across a spectrum of financial products, including retail loams, credit cards, debit cards, saving accounts, point of sale terminals, direct sales of third party mutual funds, government bonds, depositary share accounts etc.. A critical aspect of the retail strategy is cross selling the entire range of credit and investment products and banking services to retail customers. The competitive advantages for ICICI bank are an established brand, size(second largest bank in India) and enhanced capital base, comprehensive suite of products and services, extensive corporate and retail customer relationships, technology- enabled distribution architecture, growing international footprints, focus on innovation and vast talent pool. ICICI bank as successfully continued the process of diversifying its asset base and building a de-risked portfolio. ICICI Bank has demonstrated its capabilities across products, customer segments and markets and continues to leverage this platform to achieve market leadership, while delivering value to its stakeholders 5
  13. 13. Retail Banking Sector 13 Retail Banking in ICICI Various Retail banking products by ICICI Bank a) Deposits • Savings Account, • Private Banking, • Salary Account, • Women's Account, • Fixed Deposits b) Investments • ICICI Bank Bonds, • Mutual Funds, • Pure Gold c)Insurance d)Anywhere Banking e) Online Services • Bill Pay, • Shopping, • Ticketing, • Charity f) Loans • Home Loans, • Car Loans, • Personal Loans, • Loans against Securities, • Two-Wheeler Loans g) Cards • Credit Cards, • Debit Cards, • Travel Card l) Demat m) Mobile Banking n) NRI Services • NRI Home, • Banking Products, • Money 2 India, • IMD Holders
  14. 14. Retail Banking Sector 14 Key focus areas which need to be examined 1. Deposits 2. Cards 3. Wealth Management 4. Mortgages and Lending 1) Deposits ICICI Bank offers wide variety of Deposit Products to suit your requirements. Coupled with convenience of networked branches/ ATMs and facility of E-channels like Internet and Mobile Banking, ICICI Bank brings banking at your doorstep. Select any of our deposit products and provide your details online and our representative will contact you for Account Opening. Savings Account ICICI Bank offers you a power packed Savings Account with a host of convenient features and banking channels to transact through. So now you can bank at y convenience, without the stress of waiting in queues. Senior Citizen Services People at the age of retirement have various concerns like - • whether your hard earned money is safe and secure • whether your investments give you the kind of returns that you need For these concerns, ICICI have an ideal Banking Service for those who are 60 years and above. The Senior Citizen Services from ICICI Bank has several advantages that are tailored to bring more convenience and enjoyment in your life. Young Stars To help children learn the value of finances and money management at an early age. Banking is a serious business, but to make banking a pleasure and at the same time children learn how to manage their personal finances, ICICI have introduced Young Stars Deposit A/c. Recurring Deposits When expenses are high, you may not have adequate funds to make big investments. But simply going ahead without saving for the future is not an option for you. Through ICICI Bank Recurring Deposit you can invest small amounts of money every month that ends up with a large saving on maturity. So you enjoy twin advantages - affordability and higher earnings. EEFC Account Indian exports have surged over the last decade owing to an unprecedented boom in sectors like software, biotechnology, gems, jewellery, textiles etc. As a result of this, the volume of inward remittances has also increased significantly. To shield the firms engaged in regular export and import from the exchange rate fluctuations RBI has allowed parking of foreign currency by exporters in an account designated as Exchange Earners Foreign Currency Account (EEFC). EEFC accounts are Current Accounts held in foreign currency with authorized dealers of foreign exchange in the country.
  15. 15. Retail Banking Sector 15 Resident Foreign Currency (Domestic) Account (RFCD) Resident Indians are permitted to open, hold and maintain Resident Foreign Currency (Domestic) Account out of foreign exchange acquired in the form of currency notes, bank notes, travelers cheques and out of, foreign exchange earned and/or gifts received from close relatives (as defined in the Companies Act) and repatriated to India through normal banking channels by resident individuals. Foreign exchange earnings could be through export of goods and/or services, royalty, honorarium, etc. Privilege Banking At ICICI Bank, we value the trust which you have reposed in us, as your preferred banking partner. It is our great privilege to select valued customers like you and offer a host of exclusive benefits across multiple products and services, specially designed for you. • Gold Privilege Account – As good as Gold • Silver Privilege Account – Solid Silver Salary Account ICICI Bank Salary Account is a benefit-rich payroll account for Employers and Employees. As an organization, you can opt for our Salary Accounts to enable easy disbursements of salaries and enjoy numerous other benefits too. 2) Cards Credit Cards ICICI Bank Credit Cards give you the facility of cash, convenience and a range of benefits, anywhere in the world. These benefits range from life time free cards, Insurance benefits, global emergency assistance service, discounts, utility payments, travel discounts and much more. Debit Cards The ICICI Bank Debit Card is a revolutionary form of cash that allows customers to access their bank account around the clock, around the world. The ICICI Bank Debit Card can be used for shopping at more than 100,000 merchants in India and 13 million merchants worldwide. Travel Card Presenting ICICI Bank Travel Card. The Hassle Free way to Travel the world. Traveling with US Dollar, Euro, Pound Sterling or Swiss Francs; Looking for security and convenience; take ICICI Bank Travel Card. Issued in duplicate. Offers the Pin based security. Has the convenience of usage of Credit or Debit card. 3) Wealth Management a) Investments ICICI Bank Bonds All ICICI Bank Bonds have been rated "AAA" by CARE and "LAAA" by ICRA indicating the highest degree of safety for your money Investment in ICICI Bank Bonds are eligible for tax rebate under Sec 88 to the full extent possible Bonds are listed on BSE, NSE
  16. 16. Retail Banking Sector 16 Mutual Funds We will help you determine which types of funds you need to meet your investment goals. This may include the following types of funds: • Debt : Liquid schemes, Income schemes, G-sec schemes, Monthly Income Schemes etc. • Equity : Diversified Equity Schemes, Sector Schemes, Index Schemes etc. • Hybrid Funds : Balanced Schemes, Special Schemes - Pension Schemes, Child education Schemes etc. Pure Gold Gold has been traditionally the most favored form of investment for Indians. In fact, India, even today is amongst the highest consumers of Gold in the world. However, the Gold market remains largely unorganized with reliability and convenience remaining the key issues for gold buyers in the country. ICICI Bank with its ‘Pure Gold’ offer attempts to bridge the gap between the need of the customers for buying gold and availability of an organized avenue to satisfy that need, by taking care of the two key components – Reliability and Convenience. b) Insurance Convenience has always been synonymous with ICICI Bank and keeping in line with this, we now offer you, the facility of buying Insurance policies online. i. Life Insurance from ICICI Prudential Life Insurance • LifeTime Pension II policy with No Life Cover ii. General Insurance from ICICI Lombard General Insurance • 10K Tax Saver Health Insurance • Health Insurance “Secure yourself and your family” - Family Protect Policy • Home Insurance "Secure valuables in your house" - Structure - Contents • Motor Insurance- Mandatory - "Secure your Vehicle" - 4 Wheeler - 2 Wheeler • Travel Insurance - "Secure yourself during your travel" - Overseas Travel Insurance - Student Travel Insurance Insurance market in India: The size of Indian insurance market was Rs.187 bn. The state owned LIC (Life Insurance Corporation) continues to be the largest player in the country. Apart from LIC, there are a total of twelve private players in the Indian insurance market. In this there are six bank owned insurers and six independent insurers. 4) Mortgages and Lending Home The No. 1 Home Loans Provider in the country, ICICI Bank Home Loans offers some unbeatable benefits to its customers - Doorstep Service, Simplified Documentation and Guidance throughout the Process.
  17. 17. Retail Banking Sector 17 Personal • Loans for salaried & self employed individuals. • Loans are available from Rs. 20,000 to Rs. 15 Lakhs. • Repayment tenures from 12 - 60 months. • No Security, Collateral or Guarantors required. • Loans can be used for any purpose with no questions asked regarding the end use of the loan. • A balance transfer facility available for those who want to retire any higher debt. • All loan repayments are done via equated monthly installments (EMI). Car The NO 1 financier for car loans in the country. Network of more than 1500 channel partners in over 780 locations. Tie-ups with all leading automobile manufacturers to ensure the best deals. Flexible schemes & quick processing. Hassle-free application process on the click of a mouse. Two-Wheeler Loans Avail attractive schemes at competitive interest rates from the No 1 Financier for Two Wheeler Loans in the country . Finance facility up to 90% of the On Road Cost of the vehicle, repayable in convenient repayment options and comfortable tenors from 6 months to 36 months . Ride home on your Dream Two Wheeler with our hassle free finance Commercial Vehicle Range of services on existing loans & extended products like funding of new vehicles, refinance on used vehicles, balance transfer on high cost loans, top up on existing loans, Xtend product, working capital loans & other banking products. Loans against Securities Loans against Securities enables you to obtain loans against your securities. So you get instant liquidity without having to sell your securities. All you have to do is pledge your securities in favor of ICICI Bank We will then grant you an overdraft facility up to a value determined on the basis of the securities pledged by you. A current account will be opened and you can withdraw money as and when you require. Interest will be charged only on the am ount withdrawn and for the time span utilized. Loans are offered against: • Demat Shares • RBI Relief Bonds
  18. 18. Retail Banking Sector 18 • Mutual Funds Units • India Millennium Deposits (IMDs) • ICICI Bank Bonds • Life Insurance Policies (Single Premium) Farm Equipment Preferred financier for almost all leading tractor manufacturers in the country. Flexible repayment options in tandem with the farmer's seasonal liquidity. Monthly, Quarterly and Half-yearly repayment patterns to choose from. Comfortable repayment tenures from 1 year to 9 years. Construction Equipment • Having funded infrastructure for over 4 decades, we understand the need of the customers better. • ICICI Bank offers attractive financial packages through our excellent distribution network. • Our products are customized for new entrepreneur to large business houses. • We have tie-up with leading construction equipment manufacturers for wide range of products. • We take over existing high cost loans at competitive terms resulting in huge savings. • Quick processing due to easy formalities and one time sanction of loans for disbursement over a period of time. Office Equipment 1. Minimum documentation required. 2. Our Key features are: • Doorstep Service. • Minimum documentation. • Competitive Interest rates. • Flexible repayment structure. • Hassle-free application process with the click of a mouse. • Details on your application status online. Medical Equipment Loans against Securities As a top-notch professional, you are aware of the distinct advantages that the latest medical equipment can give your patients. ICICI Bank Medical Equipment Loans will support you in your effort to give the best to your patients. It's our humble way of being involved in a noble profession. We offer loans for: • Purchase of New equipments. • Takeover of Existing loans. Our Key features are: • Doorstep Service. • Funding in more than 150 locations across the country. • Competitive interest rates. • Flexible repayment structure.
  19. 19. Retail Banking Sector 19 ICICI Bank’s Mega Issue The year 2004 till now has been the year of the public issues . The market is flooded with the IPOs, many are already in the market and many are waiting to hit the market. Of all the issues floated, ICICI Bank’s issue is the second largest issue (only after ONGC) and the largest by any private The board of directors of ICICI Bank has approved the issuance of equity shares of the Bank in the domestic markets. The size of the public issue is between Rs 3,000 -3,500 crore (Rs 30-35 billion), and is scheduled to open in April. It will be a domestic book built issue, and will dilute equity by about 15-17% and is likely to be priced at 2-2.5 times its book value. Reasons for Raising the Issue ICICI Bank wants to come up with the issue in order to fund its future growth. The Bank cites a lot of growth opportunities in the Indian economy which is growing at 7-8%. Consumer credit in India is growing at a very fast pace, and ICICI Bank is in the Indian economy which is growing at 7-8%. Consumer credit in India one of the leading providers. In fact, it is the leading provider of retail services in the country today and as the leading bank it doesn’t want to forego the growth opportunities, and the capital that the Bank would like to commit to its international operations. The money from the issue would help fuel growth plans of the Bank for the next four years. Retail, infrastructure loans and insurance are areas where demand for funds is seen to grow rapidly in the coming months. The demand for credit from retail front is expected to increase with continued economic growth, rising household incomes and lower interest rates. The clamor for credit from manufacturing is also expected to increase after looking into the governments plans to invest in the infrastructure. Bankers feel infrastructure funding will pick up in 2004-05 as various projects, led by power, are likely to attain financial closure. State Bank alone expects a core sector-driven jump of 16 per cent in loan disbursals.
  20. 20. Retail Banking Sector 20 Technology led initiatives
  21. 21. Retail Banking Sector 21 Wells Fargo, USA Wells Fargo & Company is a diversified financial services company with $397 billion in assets, providing banking, insurance, investments, mortgage and consumer finance from more than 5,900 stores and the Internet ( across North America and elsewhere internationally. The Wholesale Banking group at Wells Fargo serves middle-market and large corporate businesses with traditional and asset -based lending, treasury management, equipment leasing, institutional investment, insurance brokerage, risk management, and real estate services. Retail banking strategies Late 1989, its Business Banking group formed in retail bank to focus on small business customers. Business lending division created to lead to firms with less than $10 MM in sales. In 1994, cost studies showed that standard lending processes (distribution, underwriting, servicing) were uneconomic for smallest loans. Business direct formed in 1994 to focus on streamlined lending of up to $100,000 primarily to businesses with sales less than $2 Million. Wells Fargo has embraced automation for under-$100,000 loans to small businesses. Wells delivers these loans nationally through centralized processing and servicing operations. Products are standardized, and potential customers are solicited on a pre -approved basis. Approval decisions rely heavily on credit scores. These scores are assigned using privately developed software that exploits Wells’ small business database. Wells Fargo uses its branches to market small business loans over $100,000. For these loans, Wells does not use credit scores, but instead compares the small businesses’ financial position against a benchmark of businesses in similar industries. The process not only assigns a risk rating for the small business, but also suggests banking products appropriate to the business. Small business lending at Wells Fargo 95 % of small businesses are best thought of as a specialized segment of the consumer market and not as commercial customers. Exhibit shows the count of small business by its annual sales. 6
  22. 22. Retail Banking Sector 22 Providing small loans to these small companies is a big and growing business in U.S. Exhibit shows the spending through credit cards for payment in transaction by small business companies.
  23. 23. Retail Banking Sector 23 Wells Fargo’s Business direct was established for building a lending operation focused on various small businesses. Even the small business is segmented into various categories as show below. The average lending profitability of these small business segments
  24. 24. Retail Banking Sector 24 Comparison between traditional Loan lending process and the process followed at Wells Fargo’s Business Direct. Marketing and New account Acquisition for attracting low risk small business borrowers • Making good, solid borrowers want to apply and use credit is critically important to the credit quality and profitability of the portfolio • Adverse Selection - Long, involved application - Uninterested Offer: Very small credit limit; Very high interest rates - Internet • Positive Selection - Short, easy application - Low rates - Easy for branches to sell the product • Offers • Creative / Direct Mail Piece Design • Telemarketing Scripts
  25. 25. Retail Banking Sector 25 • Channels – Store, Direct Mails, Telemarketing, Internet • Disciplined analysis of test results required to succeed. What kind go customers are we attracted? What’s working? What’s not working The business direct loan decision process
  26. 26. Retail Banking Sector 26 Techcom Bank, Vietnam A leading urban commercial bank in Vietnam providing full scale of diversified and highly competitive financial service to corporate and individual customers aiming at customer satisfaction, shareholders value creation, employees benefit and development and contribution to Society development. Major core values • Customer driven organization • Mutual benefit among customers, shareholders and employees • Learning organization • Company culture : Trust and commitment, Professionalism, transparency and innovation. Critical success factors • Technology based product development • A well defined strategy of targeted customers, products and operation area • Well capitalized • A comprehensive human resources strategy • Support from consulting organizations • Utilizing resources effectively. Good combination of internal and external resources. Targeted clients 1. Small and medium enterprises • Import-Export enterprises • Manufacturing enterprises • Construction, Pharmaceutical, Transport equipment • Commercial services enterprises • Enterprises operating in the real estate fields 2. Consumers banking & household business • Medium and high end consumer clients in the cities • New generation aged from 20 – 35 years old • Private household business 3. Major Accounts • Import-Export Sector • High consumption good manufacturing • Construction, Pharmaceutical, transport equipment • Car manufacturing • Retail estate developers and operators 7
  27. 27. Retail Banking Sector 27 4. Financial institutions • Medium and small financial institutions • Insurance Companies Retail banking Strategy • Technology based product focusing on account related consumer banking development • Mortgage lending and care financing • Bank card business with focus on domestic market • High density of Techcon bank sales outlets combined with ATM/POS network in Hanoi, Saigon, Danang, Haiphong and industrial areas • Cross selling strategy with insurance and asset management product and services in line with Marketing alliance with great consumption sectors for added value service to individual clients • Selling points : Superior – Standard – Advanced products, quality, easy access and in fashion
  28. 28. Retail Banking Sector 28 The Excellence in Retail Financial Services Evaluation criteria ICICI Wells Fargo Techcom Bank Annual financial performance of the retail bank 4 5 3 Sustainability (based on % core recurrent business) 4 4 3 Transparency in strategy 3 3 3 Sales capability 5 3 2 Processes and technology 4 5 3 Penetration and efficiency of distribution channels 5 5 3 Product Strategy 5 4 4 Overall Rating 4.16 4.16 2.83 8
  29. 29. Retail Banking Sector 29 Top 5 Imperatives for Banks (Infosys Banking Domain Competency Group) 9
  30. 30. Retail Banking Sector 30
  31. 31. Retail Banking Sector 31
  32. 32. Retail Banking Sector 32
  33. 33. Retail Banking Sector 33
  34. 34. Retail Banking Sector 34 Conclusions & Recommendations In this report we have tried to put the role of product innovation into perspective for banks. Banks face an increasingly competitive environment over the next several years and therefore need a clear strategy in order to be successful and prosper. For almost all institutions, customer centricity will be the bedrock of that strategy. Today many banks are focusing management energy and investment of their distribution networks, where significant revenue gains can be achieved by improving services and cross selling efficiency at the point of customer contact. We recognize that each bank is unique and faces different challenges based on its local markets, historical business approach, strategies, organization, processes and investments. The retail banks may need to refocus their strategy on customers and customer value management rather than solely on products and product management. By doing so, they can start to create and use strategies that increase profitability and result in a stronger customer franchise. Customers are the scarcest resource in business today - even scarcer than capital. A sound customer strategy helps banks to focus on not just any customers, but the right customers - those who offer the highest value today and tomorrow. Most of the banks use customer value metrics to help measure the effectiveness of sales campaigns some use them in measuring the overall success of the organization. CRM is gradually breaking through its bottleneck and achieving end-to-end marketing. Following factors give rise to better customer relationship management: Significant advances in cheaply and quickly drawing customer information out of tradition system. This used to be cumbersome and expensive and sometimes placed undesirable strain on the tradition system. 'Print streams' for statements, bills, order confirmations, customer letters and so on, can now be manipulated to include marketing messages tailored to the individual recipient, taking advantage of all the sophisticated analysis and segmentation that takes place at the database level. Incremental cost for the marketer is minimal. The straight cost of investing in CRM has fallen, making it more acceptable to careful CFOs at larger organizations and financially more feasible. A range of CRM package options have arrived, 10
  35. 35. Retail Banking Sector 35 including the hosted, charged on a service rental basis, low-cost de-featured start-up packages, and even charging pe r transaction. Private Banksthat invest in segmentation are likely to be the ones that increase customer satisfaction and referrals and, therefore, market share. From the diverse client base of any bank there are a number of fundamental needs and sentiments that HNW individuals have in common, and it is these needs that should be translated into a range of very different product and service requirements through segmentation. Featuring high on the HNW 'wish list' is that providers should break away from the 'one size fits all' mentality and take into account each client's individual circumstances when tailoring their services. "Segmentation based upon level of wealth does not adequately address the issue of individual needs, just as one individual with a million dollars is as different from another as any two drivers of a similar car.
  36. 36. Retail Banking Sector 36 Appendix Wells Fargo - Balance sheet
  37. 37. Retail Banking Sector 37 Techcom – Balance Sheet
  38. 38. Retail Banking Sector 38 ICICI – Balance sheet
  39. 39. Retail Banking Sector 39