Copyright IBM Corporation 2008 Private & Confidential
Significance & Role of
Banking Strategy Mr. V Seshadri Copyright IBM Corporation 2008 Private & Confidential Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1790; both are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India in 1955. 2 Origins of Banking in India Copyright IBM Corporation 2008 Private & Confidential Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a consequence of the economic crisis of 1848-49 The Allahabad Bank, established in 1865 and still functioning today, is the oldest bank in India Foreign banks started from Calcutta, in the 1860s. From 1906 to 1911, Swadeshi movement inspired local businessmen and political figures started banks for the Indian community. Many of the PSUs were started during this period. 94 banks in India failed between 1913 and 1918. 3 Pre-Independence Banking in India Copyright IBM Corporation 2008 Private & Confidential The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance. RBI established in April 1934 as private institution & nationalised in 1949 RBI regulates, controls, and inspects the banks in India besides licencing of new bank/branches. 4 Post-Independence Banking in India Copyright IBM Corporation 2008 Private & Confidential 5 Copyright IBM Corporation 2008 Private & Confidential 6 Phases of Evolution of the Indian Banking Industry Copyright IBM Corporation 2008 Private & Confidential 7 Phases of Evolution of the Indian Banking Industry - continued Copyright IBM Corporation 2008 Private & Confidential 8 Structure of the Organised Banking Industry Copyright IBM Corporation 2008 Private & Confidential 9 Business Segmentation Copyright IBM Corporation 2008 Private & Confidential 10 Products & Services Copyright IBM Corporation 2008 Private & Confidential Credit Policy Collection Policy Investment Policy Interest Rate Management Policy Asset Liability Management (ALM) policy Accounting policy HRM policy KYC policy Compliance policies Corporate Governance policy Premises policy Customer Service Policy Information Technology (IT) policy 11 Types of policies Copyright IBM Corporation 2008 Private & Confidential Policy Strategy Policy is a guide to the thinking and action of those who make decisions Strategy concerns the direction in which human and physical resources will be deployed and applied Policy is contingent decision Strategy is a rule for making decision Implementation of policy can be delegated downward in the organisation Strategy cannot be delegated downward Policy of an organization is prepared to deal with the internal affairs generally Strategy generally deals with the affairs and events that are external to the firm Strategy produces the policies Policies do not produce strategy A policy is framed for recurring activities Strategy is not formulated for recurring activities. It is formulated to meet the events that may arise in near future and also in the long run Policy is an outcome of strategy Strategy of a company can be known if we analyse the policy followed by a company 12 Difference between Policy & Strategy Copyright IBM Corporation 2008 Private & Confidential Policy Strategy Policy implements strategy Strategy does not implement policy Examples of policies are product policy, sales policy, credit policy, IT policy, HR policy, collection policy Examples of strategy are stability strategy, growth strategy retrenchment strategy and combination strategy Policy is a blueprint of the organizational activities which are repetitive/routine in nature Strategy is concerned with those organizational decisions which have not been dealt/faced before in same form Policy formulation is responsibility of top level management Strategy formulation is basically done by middle level management Policy deals with routine/daily activities essential for effective and efficient running of an organization Strategy deals with strategic decisions Policy is concerned with both thought and actions Strategy is concerned mostly with action 13 Difference between Policy & Strategy.. continued Copyright IBM Corporation 2008 Private & Confidential 14 Relationship between strategy & structure An organisation's strategy is its plan for the whole business that sets out how the organisation will use its major resources. An organisation's structure is the way the pieces of the organisation fit together internally. It also covers the links with external organisations such as partners For the organisation to deliver its plans, the strategy and the structure must be woven together seamlessly
Organisational structures need to be designed to meet aims. They involve combining flexibility of decision making, and the sharing of best ideas across the organisation, with appropriate levels of management and control from the centre
Copyright IBM Corporation 2008 Private & Confidential There are many ways to structure an organisation. For example, a structure may be built around Function: reflecting main specialisms e.g. marketing, finance, production, distribution Product: reflecting product categories e.g. bread, pies, cakes, biscuits Process: reflecting different processes e.g. storage, manufacturing, packing, delivery
15 Structure of organisation Copyright IBM Corporation 2008 Private & Confidential 16 Evolution of bank marketing in India Copyright IBM Corporation 2008 Private & Confidential Period is known as Pre-nationalisation period Strong accounting orientation of bankers down the time Investment of banks funds is based on liquidity principles More importance to quality of security & requirement of customer gets least importance Customer was presented with readymade banking products with an option to take it or leave it Limited banking network Period is popularly known as period of class banking 17 Traditional Banking Period Copyright IBM Corporation 2008 Private & Confidential Period is known as Post-nationalisation period Phenomenal branch expansion during the 70s Financial assistance on very large scale was made available to economically weaker sections of the society Large number of deposit & loan schemes were developed during this period Banks adopted selling stance Discipline of bank marketing did travel some distance in as much as marketing tools like market segmentation, product diversification and expansion were experimented with Example, SBI came out with innovative loan products like IRDP, Differential Interest Rate Scheme, Crop Loans etc. 18 Development Banking Period Copyright IBM Corporation 2008 Private & Confidential Period is known as Modern period Financial disintermediation is the most important factor which has given momentum to bank marketing Basic job of a banker is to accept deposits from depositors & after providing funds for SLR/CRR, bank extends loan to borrowers. Difference between deposit interest rate & loan interest rate is the bankers spread Bank acts as an interlinking factor & this is called financial intermediation
With opening of new avenues for both deployment of surplus funds & also for securing funds, meeting of depositor & borrower via banks are now meeting without mediation of banks which is known as process of financial disintermediation
19 Bank Marketing period Copyright IBM Corporation 2008 Private & Confidential 20 Concept of Marketing Orientation in Banking Copyright IBM Corporation 2008 Private & Confidential 21 Do Banks need Marketing? In the current environment Banks are operating in a buyers market Customer looks for a bank which can meet all his requirements at an affordable competitive cost Customers are increasingly quality conscious Customer likely to feel that the given marketing package has been specially designed for a person like him only Results in greater satisfaction of customer needs which will in turn result in higher return for every rupee spent on marketing Marketing material to be targeted for following segments Household Institutional Rural Copyright IBM Corporation 2008 Private & Confidential 22 7 Ps of Bank Marketing Product Price Place Promotion Process People Physical evidence Copyright IBM Corporation 2008 Private & Confidential 23 7 Ps of Bank Marketing - Product Product mix- stands for both goods & service combination offered to public to satisfy their needs Bank products can be categorised in three groups Core Products Formal Products Augmented Products Evolution of Banking Products
Copyright IBM Corporation 2008 Private & Confidential 24 7 Ps of Bank Marketing - Product Core Product features Define the business of a commercial bank that is whatever banking service was extended these core products are there They do not have strong marketing content Used as basic tools of commercial banking & serve the full range of customer segments Core products are indispensable to any business Core products Savings Bank account Current account Term Deposits Recurring Deposit Cash Credit Term Loan Overdraft etc.
Copyright IBM Corporation 2008 Private & Confidential 25 7 Ps of Bank Marketing - Product Formal Product features Formal product is usually a combination of two or more core products They have strong marketing content as they cater to some specific customer needs Formal product examples Sulabha, overdraft of Canara Bank Vijayasree unit of Vijaya Bank Smart Money of Hong Kong Bank Two-in-one of Standard Chartered Bank Unfixed deposit of Citibank
Copyright IBM Corporation 2008 Private & Confidential 26 7 Ps of Bank Marketing - Product Augmented Product features Further Modification of Formal product with value addition Main advantage of an augmented product stems from its strong marketing content
Formal product examples Smart Money account with Hong Kong Bank
Copyright IBM Corporation 2008 Private & Confidential 27 7 Ps of Bank Marketing - Price In banking industry, price is the amount of money that will determine the exchange rate of Bank product or services between the Bank & customers Unique feature of Bank price is that products are mostly designed by the banker while price is determined by RBI & GOI. Due to this, there is uniformity in the price of bank products throughout India. Hence, the chance of competition on basis of price is almost NIL As a part of economic liberalisation programme of Govt. pricing in Indian banking is steadily being deregulated Even though complete deregulation of the price regime is still to materialise, price is fast becoming a strategic tool for bankers for marketing of their products
Copyright IBM Corporation 2008 Private & Confidential 28 7 Ps of Bank Marketing - Place The place where the banking products or service are delivered is an important element in bank marketing Prior sanction from RBI & responsibility of banks towards development of banking habit in remote unbanked areas have been some of the important given parameters From the marketing standpoint, place strategy is not fully positive to Indian Banks.
Copyright IBM Corporation 2008 Private & Confidential 29 7 Ps of Bank Marketing Promotion Promotion is a demand stimulating aid through communication Promotion is to remind individuals & persuade them to accept, recommend or use of product service or idea Marketing promotion campaign has two objectives To Inform the prospective customer Persuade him to use the product service or idea Marketing strategy should be designed to suit not only the present market but also the potential future market
Copyright IBM Corporation 2008 Private & Confidential 30 7 Ps of Bank Marketing - Process Process is crucial to bank marketing strategy It gives value to the buyer and an element of uniqueness to the product It provides competitive advantage to the bank Importance of process in bank marketing strategy is based on value chain concept Copyright IBM Corporation 2008 Private & Confidential 31 7 Ps of Bank Marketing - People Like any other service industry, banking is a labour intensive industry People are crucial to the success of any business Each employee in a bank irrespective of his position in the bank hierarchy is both a recipient & provider of service In other words to satisfy a customer, people who participate this must be right and apt ones Copyright IBM Corporation 2008 Private & Confidential 32 7 Ps of Bank Marketing Physical evidence Physical evidence is the strategic tool for the bank marketer Upkeep of branch premises & interior dcor Imaginative designing of bank stationery used by customers Product packaging in banking industry Attractively designed product brochure Catchy brand name Copyright IBM Corporation 2008 Private & Confidential Thank You