But then again, the signals are all there. One strong signal was last night's talk by Dr. PJ Nayak, the CMD of UTI Bank. The kind of professional display and the quality of interaction that the students of the institute put up during this talk would have impressed even the most hardcore of cynics. The talk on Banking on Clutter: Marketing, Segementation, and Risk Mitigation was not really hard core fin. However, the sheer brilliance of Dr. Nayak's elocution combined with a receptive audience made the talk really interesting. The faculty's presence in the talk was another encouragement that, according to me, actually made the students participate more than they normally do.
In fact, for the past few seminars and talks that I have been witnessing on campus, there has not been much of quality participation from the audience (except probably for a part of the IT Seminar, due to widespread familiarity with the topic). This time, things were different partly on account of the short, simple, and yet meaningful nature of the talk by Dr. Nayak and partly due to his delivery which was, as I have already mentioned, impressive.
Dr. Nayak talked about how one of the oldest institutions that have survived in the market is commercial bank and how despite being written off by many as being liable to disintegrate into the asset side and the liability side, these banks have carved out a niche for themselves while at the same time, not letting go of the bundled service that they provide to their customers.
However, this ability of banks to survive, Dr. Nayak said, is not sufficient if they have to actually grow and flourish. Modern banks have to take care of customer relationships by moving towards more intimate relationships with their customers. At the same time, they have to look at another scale of completeness of service and make sure that they provide as comprehensive a package to their customers as possible and all this at reasonable costs.
As he pointed out and as came out in the questions later, this leads to a paradox. Banks try to provide comprehensive facilities like ATMs, internet banking, etc by which they remove the low value tasks from the branches but at the same time by doing so, they have fewer chances of talking to their customers face to face and establish a relationship with them to either up-sell or cross-sell products and services. To counter this, banks can go for mailing communication supported by data mining techniques to ensure that things continue to go on smoothly on both relationship and completeness scales.
An ethical question on such techniques, however, was well received by Dr. Nayak as he said that there has to be a balance and self-restraint that banks have to adopt because if not, it will result in prohibitive legislations in the long run. Personally, I believe that before tapping the small market that it already has, the banking sector should look at expanding the customer base which they do not seem to be busy doing. Calling up a person who has three credit cards with three different banks (which is what the data mining software is likely to recommend) and trying to convince him/her to change to/add on a new card is useless. Creating awareness about Indian banking and its modern face amongst those who are not current customers of the sector at all, is a more prudent strategy and in the long run, a more paying one.
That was what I thought about the topic. However, there were quite a few quesions to Dr. Nayak from the students about things different from the topic (varying from asking for his comments on as brow-raising topics as HSBC's interest in UTI Bank to as eye-raising as role of GFIs in the Indian scenario). I must say that this batch seems to be more of the Fin-Mark kind than any other. I am eagerly awaiting the Finance and Marketing Seminars and can just imagine all the action that is going to come.
4 comments:
Mr.Nayak could've elaborated on the "clutter" in banking and differentiated between the diff kinds of banks in biz in India.
With the concept of relationship banking, all firang and most pvt banks have moved towards more intimate or rather effective relationships with their customers (who are worth the bank staff's time and money that is).
a)Talking about a person with 3 diff credit cards being wooed to take on another one and how this is the kind of data that data mining would throw up... if all banks have a shared database that is continuously updated may be such anomalies would show up. But that hasn't and probably wont happen in India for a long time to come. Also a credit card is unsecured credit so a bank would rather give its card to a guy who holds 3 more (which indicate that he is regular with them & hence is likely to be regular with his payments on the next one too) than to a guy who has no other cr card/loan and hence no proven credit record.
b) U know banks make profit on deposits when they can hold customers' funds and deploy it in more profitable ventures which is why pvt banks insist on a min balance of 5 k in SB a/cs. How many people do you know who can afford to keep a min 5k monthly balance and are not yet customers of banks? (legal accountable money, I mean)
c) UTI Bank seems to have no idea or doesn't want to discuss why HSBC invested in it. Mr.Nayak did not answer this question nor did his underlings who came here for summer placements. They infact replied "you would probably have a better idea".
wow...that's what I should have expected from somebody who has a much better chance of knowing this sector than anyone else in this place.
Right Ma'am, here goes what I feel about the points that you have raised:
a) It is this risk-averse nature that the banks all over the world are shedding to reach deeper and stronger into the market. As far as I understand it, the move towards anytime banking and reducing physical (and more importantly, comfortable) contact with customers is one risky venture in its own right. In the long run, only those banks that take the necessary amount of risk by actually diversifying into new markets are going to succeed. In the marketing lingo, the product is already past its growth stage and its high time the strategy changes to prolong the maturity phase and stop the decline from taking over.
b)There is a huge number of people in India (am not talking about the limited notion of India that most people have and that comprises of India's urban and at most semi-urban face alone) who invest a majority (and even all) of their savings in what Dr. Nayak called non-banking financial deposit agencies (read the pawn broker) or even in the post offices. There exists a huge market that is there for the taking, and just because of the risk (no/minimal collateral), banks are not looking in the direction.
Need of the hour is to take the risk head on and think of measures for risk mitigation and not make the risk factor an excuse to not venture into the thing at all.
c) I don't really know about the details of the HSBC thing either, and was actually waiting expectedly for an interesting answer from Dr. Nayak on this one and was pretty disappointed when he chose not to, though done diplomatically, answer the question.
PS: Seems that you were not all that impressed with Dr. Nayak and/or his underlings, as you call them.
By de-personlising their service delivery(ATMs/net banking/call centres), banks are taking a negligible risk as this is related more to the liabilities side and not lending where the bigger risk lies.
Going into the rural areas involves high investment in infrastructure on the bank's part (ATMs, staffing, linking servers, etc) which needs to be built on public infrastructure (tele lines, easy access, power) and quick profits which is why pvt banks are still shying away from hard core "rural" areas tho' they have penetrated into the smaller towns.
Dr.Nayak spoke impressively but he didn't say NEthing new. Almost every new pvt bank has been following most of what he said for the last 5 years or more - which is why ICICI and HDFC are far ahead of UTI Bnk. His subordinates didnt have a good answer as to how they planned to grow("we have our own growth path and we are not looking at mergers"). Was looking for more articulate responses.
At the cost of repeating myself, I would still say that the banks in India are committing one serious mistake of looking at the short run and not at the bigger picture. It's not that the banking sector has not found success in rural areas (despite the risk, infra, etc). Stories like Grameen Vikas Bank, that proved to be a huge success in Bangladesh and that have been replicated with some very interesting results in parts of Bihar, Orissa, and Bengal (some of the 'poorest' Indian states) show that there is a lot of scope for the bigger players.
I can not claim to be right and proclaim all other more knowledgable decision makers in the Indian banks as wrong but nevertheless, my gut feeling still says that the banks will be better off focussing on newer areas even at the cost of higher risk and not just think of risk mitigation alone.
As for the ATMs, decentralisation, etc, all I wanted to say was that this was a step towards a more risky enterprise by traditionally conservative banks and I was not at all comparing the risk involved to any other scenario(s)...my point being that if they could be receptive enough to take this risk and break open their shackles, so to say, they might as well be proactive and take another set of risks to be market leaders of the future.
PS: You should have gone for the debate at Bangalore...we might have had a better chance of winning :-)
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