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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.
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Origins of Banking in India
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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.
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Pre-Independence Banking in India
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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.
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Post-Independence Banking in India
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Phases of Evolution of the Indian Banking Industry
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Phases of Evolution of the Indian Banking Industry - continued
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Structure of the Organised Banking Industry
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Business Segmentation
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Products & Services
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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
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Types of policies
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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
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Difference between Policy & Strategy
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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
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Difference between Policy & Strategy.. continued
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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


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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

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Structure of organisation
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Evolution of bank marketing in India
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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
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Traditional Banking Period
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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.
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Development Banking Period
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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








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Bank Marketing period
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Concept of Marketing Orientation in Banking
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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
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7 Ps of Bank Marketing
Product
Price
Place
Promotion
Process
People
Physical evidence
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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

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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.


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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


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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


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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

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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.

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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

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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
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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
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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
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