project on various business strategy

7/29/2019 Project on various business strategy

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INTRODUCTION

The service industry has always been a vital component of all economics. It

has become more in these days of globalization staring with the agricultural and

the industrial economy, the emphasis has now focused towards the service

economy.

In India, service industry has been given due recognition as being crucial

to the economy. Banking is a service industry. The product manufactured

by it is service, which is multi-furious in nature. The Indian banking industry is

more than a century old and all along till a decade ago financial products

offered by the banks were simple and traditional. Banks looked at the market

blinkers on and as a result of which imaginations and aggressiveness took the

back seat. Prior to Independence, only certain wealthy individuals know banks

and the branch heads were known as agents.

After independence, banks had become development oriented and

started looking at various sectors of Industry, Trade and Agriculture. The

range of products/services offered were similar in features across the banks in

the industry and interest rates are controlled by the regulator, giving no scope of

any competition between the buyers. The only parameters which were left out,

were the quality of customer service and delivery of customer service.

Consumers ere captive and had no alternative but to accept what was offered

to them by the industry.

Banking institutions are no longer expected to act as traditional mobiliser

and deployer of financial resources in a particular country. Now they are

acting as catalyst of change in the service sector. Rapid pickup of

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globalization and liberalization, several sweeping changes have taken place in

the financial sector.

Since 1991, in India, there have been many financial reforms like deregulation

of interest rates, dismantling of dire t credit etc. The economic reforms created

ample opportunities and challenges to financial intermediaries.

The banks cannot sell services which are not customer specific. They

would have to act as providers of service in buyers market rather than sellers

market. They are entering in market driven banking environment moving

beyond the horizons of direct banking. In view o this, the banks have to adopt

Modern Strategic Marketing philosophy, besides maintaining tempo ofoperational management of their services.

Strategy making in any business entity is an evolving concept,

hingering onchanges in the external environment. Banking is certainly no

exception. Strategic initiatives, in the strict sense, are not merely confined to

formulating nussion statements. In boarder & logical sense, they entail

acquiring the necessary where vital to flawlessly anticipate change and execute

the strategies for acting on environmental changes. Generally, firms have very

little or no control over change in external environment strategic management in

the sense, is of paramount significance for any governing institution, especially

in a regime of environmental extremes. Strategic management is also deemed

as a sine qua non for change management .

Banking sector in India has been subjected to vigorous reforms

matching international standards. Notwithstanding the initial pangs and

pains, Indian banks are in the process of setting high standards in terms of

operational safety, transparency, strength and soundness. Today, one can see

frequent replication of success stories in several banks, promising to be global

majors of tomorrow. The ongoing second phase of banking reforms primarily

aims at consolidating the gains made in first phase and gear up banks to take

on the challenges in the new millennium.

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Considering this back ground, a modest attempt is made to discuss

business strategy for marketing banking service, strategic planning process and

different types market strategies for making the banking services more relevant,

qualitative, customer-specific and market-specific.

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STRATEGIC PLANNING APPROACH FOR BANK

MANAGEMENT

Modern bank management starts with the customers, lives with

customers and dies because of the customers. Because, modern banks

have to compete not in terms of the size of credit to be provided but in terms of

credit related services provided. Since banks have to operate in buyers

market rather than sellers market, customer satisfaction is the key for the

success of any bank. This satisfaction is the direct function of the composition

of service-mix and the quality of the services. Therefore, product planning and

development plays a crucial role in the whole management of services by the

banks. Product management in banks is nothing but an act of exploring the

possibilities or the opportunities for the purpose of planning and development of

more appropriate marketing-mix to satisfy varied needs of bank customers.

Product management in banks address itself to the following issues;

(a) What is to be offered?

(b) To whom it is to be offered?

(c) Where should it be offered?

(d) How should it be offered?

(e) At what cost it is to be offered?

(f) How it can be augmented to ensure competitive edge?

In view of the above, there is need for strategic planning by banks on account of

modern liberalized, deregulated, globalised and turbulent environment. Theyhave to scan the environment and evaluate their own strengths, weaknesses,

opportunities and treats in the sphere of marketing of their services. They have

to explore where they are now and where they want to be and what is the

present package of services and what it should be in future. In this context

strategic planning, which is an act of striking a perfect balance between internal

factors

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(strengths and weakness) and external factors (opportunity and threats), is the

only way out for the success of the banks in the service sector.

STRATEGIC PLANNING PROCESS

In order to devise an appropriate customer service mix, the banks have

to formulate the appropriate operational strategies, which requires an

adherence to the following steps involved in the process of formulating an

appropriate customer service marketing strategy;

(a) Defining the purpose of the service business,

(b) Defining the scope of customer services to be rendered.(c) Specifying the target market,

(d) Specifying the target customer,

(e) Analyzing the external environment,

(f) Formulating an appropriate customer service marketing strategy,

(g) Implementation of strategy, and

(h) Evaluation and follow-up action for making a change in the scope

Scale of service mix.

MARKETING STRATEGIES FOR CUSTOMER SERVICES

In the competitive environment modern banks are committed to provide

right services at the right time, at right place, at right price and to a right

customer. There must be perfect matching between service provided by the

banks and services needed by the Customers. They have to device future

oriented, integrated and environment sensitive service marketing strategies.

Successful operation of the banks depends on the thoughtful formulation of

strategies for marketing their services keeping in view (a) Customer groups

being served and to be served, (b) Customers needs being served and to be

served. In the light of these two factors, the following strategies may be

formulated and implemented.

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1. Market Penetration Strategy

It is an act of satisfying the present needs of the present customers.

This strategy aims to avoiding possible loss due to probable obsolescence of

bank services on account of ever changing environment; because satisfying the

same need of the same customer over a span of time results in diminishing

marginal utility for bank services.

2. Market Development Strategy

It is a strategy of satisfying current needs of new customers. Thisstrategy aims at increasing the bank market share and its profitability by

covering untouched market segments by proper sales promotion policies.

3. Product Development Strategy

It is a strategy of satisfying new needs of present customers. Basically,

customers needs are repetitive, multiplicative and dynamic in nature. They go

on varying in nature and number with the march of time. Therefore, this

strategy aims at exploring the new wants and thereby innovating new deposit

schemes, credit schemes, ancillary services, etc.

Product Diversification Strategy

It is a strategy of satisfying new needs of customers. Besides, controlled credit-

based and deposit-based services, the banks have to increase their service-

based services, the banks have to increase their service-base by way of service

diversification. For example, tax planning for salaried people and businessmen,

wealth tax planning for industrialists, gift tax planning for donors, investment

counseling for savers, factoring for businessmen, travelers cheques and credit,

debit-cum-ATMs for tourists etc., project feasibility guidance for entrepreneur,

etc., must be undertaken and strengthen the existing schemes on a massive

scale to satisfy all types of customers

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Strategic Customer Relationships

Although the decision ultimately rests with the customer as to whether or

not a relationship will exist, banks can play a part in influencing this decision.

However, this needs a carefully planned through a viable strategy and a

genuine understanding of customers. The Managers are needed to find out

about customers whole lives, not just the time that they use banks product or

service. If the Managers find out what problems or challenges they face then

more often than not they will be able to find service that fills a need or solves a

problem.

Promotion/Communication Strategy

Some of the banks spend large sums on advertising. If they have the

right products at the right customer, it is pointless if anybody knows about it.

Promotion, including advertising, lets customers not only to know products and

services but also helps them to retain in the memory. Individual working for

banks have two roles to play; (a) They need to know the promotions that their

banks has underway

so that they anticipate customers request and queries (b) The way they deal

with customers can be an advertisement itself.

Most of the customers share their experience and feelings with friends andcolleagues and focus on the good and bad of the products and services. These

personalized sharing and recommending are very important in decision-making.

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CONCEPT OF PRODUCT AND SERVICES IN BANKS

The term product in banks means a set of services designed to varied needs,

motives, style, values, etc., of bank customers. It is a want-satisfying

commodity created and delivered by bankers for customers satisfaction.

Like any other tangible products in industrial sector, the structure of the bank

product consist of different components like core management, augmented

components ancillary service components etc. It may be deposit-based service

or credit based service or other ancillary services. For example, in case of

deposit-based services, providing a place for investment in core component,

deposited related features like safety, liquidity, marketability and profitability of

investments constitute augmented component and deposit-related services like

deposit, investment counseling, tax planning and post deposit loan facility,

credit and debit cum ATM Cards constitute ancillary service component.

Therefore, the composition of these services provided by the bankers depends

upon the type of customer.

The various products and services provided by the banks are as follows.

SELF-SERVICE BANKING

ATM installation is not like buying any hardware item. It requires a lot of

study before any bank ventures into this business. There are three factors

that influence a bank entering into this area. First the technological

competition from other banks, mainly private and foreign banks. Secondly

it is one more additional delivery channel for the customers. Thirdly

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there is incomegeneration, which comes through acquiring transactions.

The bank should take into account many factors before venturing. ATM

should not be installed just to compete with other banks or just to show that

we are also having ATMs for statistics purpose. It is costly proposition and

the bank should take into account

factors like :

a) The customer based in the area where ATM is to be installed.

b) The card base that can accrue in that area which is essential to get

the necessary transaction hits so that ATM becomes viable.

c) Cost factor influences whether to own and operate an ATM switch.d) To go for sharing the same with other banks or to go for a service

provider.

e) Whether it should be on-site or off-site ATM, which means whether it

should be located in the branch or outside the branch.

f) If it is outside the bank premises, a proper agreement is necessary

with the land lord whose premises is taken for installation for ATM.

Again it involves setting up of VSAT accessibility 24/7 days, etc.

g) The banks may go for online ATMs (connected through the network

real time basis) or off line ATMs.

h) It should also be taken care that there is no concentration of the

ATMs in the area selected. Preferable allocation where no other

banks ATM exists is to be selected so that the bank get the first

mover advantage.

i) It may be considered in railway station, bus stand, market places,

tourist spots, etc. There is no thumb rule for locating one ATM. It is

up to the bank to decide keeping in mind the location should be one

where maximum usage of the ATM will occur.

ATM installation consists of hardware/software selection, which is

suitable depending upon number of ATMs to be installed and scalability, should

be considered. The hardware should have been well tested and implemented

/running in some of the major banks having more number of ATMs. Further if it

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is online ATMs, the bank should go for dedicated networking connecting the

switch to the ATM net work for proper security and redundancy including a

Disaster Recovery Centre at the switch level. Proper law down policies is

required for settlement and also the Reconciliation process without which the

Reconciliation of entries will be in shamble.

The bank can go for sharing of ATMs, which is a cost effective one with

one of the groups formed by the banks or started by a vendor. There are many

groups like Cash Tree, (which consists of PSU banks) BANCS (which consists

of PSU, private, foreign, co-operative banks), Mitr, cash net, recently started

NFS ( by IDRBT) etc. The bank should consider the issue of charges to be

levied from the customers before joining the groups. Bank should monitor theperformance of ATM on regular basis and see the customers are not suffered

due to non-availability of cash or frequent network failures. If it is not having

enough transactions the bank should consider shifting the same to a better

location.

Finally success of any ATM installation depends upon the ground work

done by bank about the location which is crucial and also a well developed

marketing strategy for canvassing new business/ATM cards. Return of

investment can not be assessed initially till the customer card base grows along

with the number of ATMs

Credit / /Debit/Smart Cards

In India, credit card operations of banks have been deregulated. Banks

with a minimum net worth of Rs.100 crore need not take prior approval of the

Reserve Bank for commencing this business, except for setting up of

subsidiaries. They can introduce the same with the approval of their Boards.

Further, based on a special study undertaken on the systems and controls on

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issue of credit cards, and recovery of dues thereunder, banks have been

advised to adopt certain additional safeguards in the matter of recovery of over

dues, sharing of information on credit card holders, fraud control etc. in order to

ensure that their credit card operations are run on sound, prudent and profitable

lines. Banks are also required to clearly spell out fees/charges involved in the

matter of issue and servicing of credit cards to minimize disputes arising in this

regard. Banks can introduce smart/on-line debit cards with the approval of the

Board, keeping in view the guidelines issued by the RBI. While banks need not

obtain the prior approval of the Reserve Bank, the details of smart/on-line debit

cards introduced are to be advised to the RBI together with a copy each of the

agenda note put to the Board and the resolution passed thereon. However,

only banks with a net worth of Rs.100 crore and above should undertake issueof off-line debit cards and these banks should take the RBIs prior approval.

Banks are also allowed to issue smart cards (on-line/off-line) and on-line debit

cards to select customers who maintain accounts with the banks for less than

six months subject to their ensuring the implementation of Know Your

Customer guidelines. However, banks introducing off-line mode of operation

of debit cards are required to adhere to the minimum period of satisfactory

maintenance of accounts for six months. Banks cannot issue smart/debit cards

in tie-up with other nom-bank entities guidelines. However, banks introducing

off-line mode of operation of debit cards are required to adhere to the minimum

period of satisfactory maintenance of accounts for six months. Banks cannot

issue smart/debit cards in tie-up with other non-bank entities guidelines.

However, banks introducing off-line mode of operation of debit cards are

required to adhere to the minimum period of satisfactory maintenance of

accounts for six months. Banks cannot issue smart/debit cards in tie-up with

other non-bank entities guidelines. However, banks introducing off-line mode of

operation of debit cards are required to adhere to the minimum period of

satisfactory maintenance of accounts for six months. Banks cannot issue

smart/debit cards in tie-up with other non-bank entities.

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CORE MANAGEMENT

According to Shri G.P. Muniappan, Deputy Governor of R.B.I. with

increasing competition, margins will come under further pressure and therefore

banks have to built long term strategies for increasing profitability levels by

rationalization of man power deployment, use of latest technology in banking

for further reduction in cost of operation.. These statement sums up the

challenges banks are facing to-day. Several large banks have allocated several

hundred crores for implementing core banking system. During the last few

years, Indian banks, particularly, the PSU banks, old private sector banks and

co-operative banks have taken major steps to rationalize their operations inorder to be profitable, efficient and provide superior customer service by

implementing core banking solutions from a number of IT services vendors.

Whilst some banks have implemented CBS products from overseas, others

have used variety of CBS solutions from Indian IT companies.

A CBS is an information back bone of the institutions and

addresses all areaof the banks business and value-chain. Choosing the

most optimal solution can open unlimited business opportunity whilst at the

same time erroneous selection can lead to disaster. Therefore, the cornerstone

of this effort is finding the right partner and specialist. The banks long term

business strategy will form the basis of the criteria for selection of a CBS. The

process of evaluation, selection and implementation is a very complex one on

account of many variable that one has to deal with internal mind sets, culture

of organization, resistance to change, fear of losing control, complexity of

technology, choice of plat forms, type of approach etc.

Before getting into an RSP mode it is important to understand what the

specific needs of the banks are and regards to the solutions. The bank will

need to have a clear understanding of what it wants to achieve in terms of

business, growth and strategy. There is no point in going for a CBS unless one

is clear about the direction. It is essential here to understand that selecting an

implementing a CBS is not a technology exercise but a management one,

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which has to be owned and driven by the top management. The following

broad facts should be kept in mind while planning the selection processes :

a) The CBS must be able to grow with the banks needs as well as be

adaptable to the changing business and regulatory environment.

b) Identification of banks specific features and functionality as opposed to a

vanilla product.

c) Identification of a solution that is proven it works and adds value

while supporting business growth, new operating methods, market

expansion and strategies of the future.

d) A detailed project plan which defines the scope of work, schedules,

resources, SLAs, etc. should be clearly identified. The project planshould include each an every aspect of the process from software

selection to Data Centre Preparation.

e) Requirement identification, deployment strategy, functional

specifications, conversion plan, etc. should be detailed out.

f) The targeted growth in terms of number of branches, people, revenues,

number of ATMs, other channels etc. within the next five years and the

means to achieve the target should be factored in.

g) Existing competitor analysis and their road map.

h) Confidence level towards stable and robust connectivity.

i) Centralised issuance of statement, cheque books, MIS, customer

management, etc.

j) Technical development taking at RBI level like SFMS, RTGS etc.

k) The system should be highly scalable to be able to handle growth in

volumes.

l) Fraud notifications availability.

m) STP of inter-bank transaction.

n) Flexibility for product configuration and launch.

EVOLUTION OF PAYMENT TECH.

Payment system in India has changed dramatically in last one decade

due to innovative use of technology. India is geographically a very large

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country with large population and it is really difficult to create one unified

payment system which can cater to all the market segments due to

infrastructure constrains. Let us look at the different payment systems which

have evolved over period of time and challenges, issues associated with each

one.

Cheque Truncation

RBI has always been at the forefront in launching new services and

technology to streamline process and bring in more efficiency in payment

system. The latest initiative being the cheque truncation project, whereby the

physical cheque will not travel from the collecting bank to paying bank whenpresented in clearing instead only cheque image will flow to paying bank. At

present, both RBI and banks are preparing for a pilot and working on detailing

of process, controls and risk associated with proposed new processes. There

are challenges from both process and technology perspectives as transaction

volumes are very high. From process perspective, there is a sudden increase

in collecting bank responsibilities from the point of physical verification of

instrument as only image is sent to paying bank. Banks should be careful in

evaluating these components from scalability, security, compatibility with RBI

systems, integration with core banking system, and image management etc.

But as this system stabilizes probably one can move from restricted clearing

window to open-ended window.

Internet Payment

EMBED Word.Picture.8

With internet banking, banks have launched lot of innovative products

and payment services for the customers. Who would have imagined that one

can pay telephone, electricity or any utility bills in mid of your dreams! To day,

you can do shopping, book airline, railway tickets, hotel rooms, tours etc., While

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your account get debited online. So bank is at your door step or should we say

desktop all the times! On one side, internet has opened up world of product

and payment services opportunities and on other side bank access is no

longer restricted to geographical boundaries which poses different challenges

from security, cyber crimes and laws.

Cash Management Systems

Large corporate are using banks cash management services (CMS) to

manage their cash flow effectively. Also, CMS help corporate to manage

their large number of collection and payment disbursement instruments .

Technology brought lot of value-added services to the clients like better funds

management MIS and efficiency in complete payment cycle. To day, with most

of the banks going for Centralized Banking System, CMS business model has

changed as within the banks network payment among branches is seamless.

Another major change in cash management product will come as number of

branches and banks offering RTGS services system gets expanded. Sooner

the high value clearing will completed move away from paper based system to

message based process of RTGS. Which not only means it will change the

way business transaction are done but also take away part of float income from

bank. Banks need to create new product and services using the RTGS

framework.

The future of banking and finance hinges around exploiting the

opportunities thrown up by the technology explosion. This requires the

combined efforts of all participants in financial system. In December 2001, the

Reserve Bank set out it vision of the road ahead in the document payments

system in India to share to vision with all participants and the nature and

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direction of reforms needed to achieve it. The collective goal should be to make

use of synergies between technology and finance to maximize the benefits to

society.

EFTOPS :

Eftops offers a cashless method of payment to the customers at the point

of sale and is important in all areas of retail transactions. In many countries, the

Eftops schemes proposed by banks have run into difficulty as the banks have

endeavored to charge more than retailers have been prepared to pay. While

trends show that Eftops will become an important payment mechanism, it is not

expected wholly to replace cheques, although successful Eftops systems arelikely to reduce cash payments, and in particular stimulate the use of debit card

rather than credit card. As with ATMs, Eftops also reduces the need for

customers to visit their branches.

INTELLIGENT TERMNIALS :

In corporate market, developments in electronic banking have led to the

introduction of intelligent terminals. With these, backed up their own central

processing units, corporate treasures can interact with the banks own

mainframe computers to undertake cash management, transactions, letter of

credit and they like receiving timely transaction data and other economic and

financial information services.

HOME BANKING OR IN-TOUCH FINANCIAL SERVICES :

Another innovative means of distributing bank services has been

pioneered in the USA through the application of computers. Computerized

facilities have been used in supermarkets to record each transaction with the

respective customers account with bank. The Seattle-First National Bank has

promoted an in-touch home service that provides customers with access to a

talking computer from touch-tone phones at homes. By calling up the bank

computers, the customer can instruct it to perform financial services such as :-

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a) Paying bills by transferring funds from his or her bank account to that of

a creditor.

b) Aiding family book keeping by reporting expenses with a bi-weekly

budget analysis broken down with several categories.

c) Computing Income-Tax data.

d) Storing household records such as insurance policies, credit card

numbers, driving license numbers and vehicle registration numbers.

Normally home banking is likely to just one of a range of services provided

as part of a home information system which also offers shopping, news,

entertainment and information data. The home banking service itself will usually

permit account interrogation; inter account transactions, bill payment, loangeneration and electronic mail. In addition some systems are adding brokerage,

insurance and mortgage banking facilities. Home banking is expected to

become a significant alternate delivery system to conventional branch systems

in due course.

RELATIONSHIP BANKING

Relationship marketing is currently in vogue Managers talk about

it. Companies profess to do it new and better ways every day. Academics

extol its merits. Companies try and build more meaningful connection with

consumers than ever before. These connections promise to benefit the

bottom line by reducing costs and increasing revenues.

The word relationship refers to the state or fact of being related. A

particular state of affairs among people related to or dealing with one

another. While this is a dictionary meaning, what we have to understand is

what creating a relationship really means from the point of view of business

strategy. How customer's trust and intimacy, are interwoven into the

connections we are trying to forge under relationship marketing.

Relationship marketing is powerful in theory but troubled in practice.

Relationship marketing may require observance of the following precepts.

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1. Seeing through the eyes of the consumer

It is well known that relationships take two. The companies have to

look close enough to see that the consumer is a willing participant in their

relationship mission. They have to consider relationship marketing from the

consumers point of view.

2. Long term and committed relationship

Many marketing initiatives like offering special discounts and

concession for switching over accounts does not result in developing long

term relationships. Customers avail of the concession and at the sametime are also willing to change the companies for more concessions.

Consumers do not welcome the company advances to woo them.

Research suggests that consumer develop coping strategies designed to

eliminate minimise, or otherwise control the deleterious effects the market

place has on the quality of their lives. Consumers develop purchase and

consumption rules to get them through the day.

3. There is a balance between giving and getting in a good

relationship

When companies ask their customers for friendship loyalty, and respect,

too often they do not give those customers friendship, loyalty, and respect in

return. Companies which claim that they are interested in the customer must

focus on the customer and not on the company alone. Sometimes customers

feel put at disadvantages by their loyalty. And sometimes a companys

preoccupation with its so-called best customers leaves other revenue

generating customers feeling left out and under-appreciated. As in the case of

new customers at certain credit and companies getting special introductory fees

while fees for long standing customers stand increased.

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4. Regaining Trust

Michael Argyle and Monica Henderson, professors at Oxford University

Defined several basic universal rules of friendship. Among them:

provide emotional support

respect privacy and preserve confidences

be tolerant of other friendships

The companies often violate each of the above rules. In doing so, they

forfeit their customers trust and, with it, the chance to build rewarding

relationships. To regain the trust the companies must show customers that

they can be valued partners. They have to prove through their actions that

marketing relationships need not be empty, meaningless, or stressful at

best. Here companies can engage social scientists to advise them

especially in the area of product design. Their expertise would eliminate

the kinds of features and functions that frustrate or overwhelm consumers.

Sony regularly engages cultural anthropologists for the task, whereas

Sharp prefers sociologists. Both the practices make salient the human

side of design. For contemporary consumers product satisfaction is linked

inextricably with life satisfaction and companies must attend to both these

dimensions if they expect to win.

Need for Relationship Banking

The business performance will suffer unless relationship marketing

becomes the epitome of customer orientation. The Relationship

banking will also improve the customer satisfaction Index and help in

arresting the loss of clientele due to competition. Further, the banks all

over the world and in all type o banking, are faced with the following

paradoxes:

People are changing the basis of their relationships.

New types of relationships are changing people.

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To cope with changes, bankers must change; and at the same time

maintain their basic nature of banking.

Bankers need to manage the minds of their customers before they can

hope to manage their money profitability.

Ignoring the corporate mind is more costly for banks than ignoring the

corporate strategy.

The products and services nd other customer care initiatives of the

1980s have fallen short of customers expectations in the 1990s.

Banks have vastly improved their methods of risk assessment, except in

the area of clients behaviors.

Customers want banks less, but need them more.

Bankers need to reshape their relationship skills if they are to be

financially competent. Banking today involves relationships. All

marketing is allied to selling and retaining customers. Relationships are

built not simply through effective systems or quality products, but by

establishing and building sound relationship.

The banker on his part has to recognize the forces, which are shaping

all types of relationships. As in medicine, technology or finance or for

that matter the entire service industry a fundamental shift is taking

place. A growing abundance of services are available off the shelf. The

supermarket has invaded the once hallowed and protected turf of the

qualified dispenser. Service providers are judged as much on these

interpersonal skills as on their scientific expertise.

People today live in an increasingly cash less world where technology

can meet most of their basic money handling needs. Conglomerates

operating in a variety of industries can provide a vast range of products

to meet most peoples requirements for loans, investments, pensions

and insurance. Expert financial advice and guidance is available round

the clock from increasingly interactive media as well as countless

newspaper columns and money magazines. Faced with such easy

access to almost every conceivable financial service, bank customers

might well ask: what is the distinctive competence of the banker?

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Traditionally and as now the essential role of the banker is to provide

financial wherewithal to enable individuals and businesses to create wealth

through achieving their financial goals. There is therefore a danger in

thinking of banking being divided into transactions and relational.

Customer relationship is a prelude to achieving greater success and

profitability.

All forms of banking retail, corporate and international involves

relationship banking. Bankers have to bring about the transformation in

the minds of customers not by marketing ploys however inventive;

gimmicky products no matter how attractively packaged; or pseudo care

whatever its label. Banker has to bring about a refreshing re-thinking of old

ideas and nurture them with true care for bank and the customer.

Economic benefits of relationship banking

Sound relationship yields traceable and quantifiable profit flow.

Firstly it is a fact that retaining profitable customers is five times cheaper

than attracting new ones.

Secondly the famous pareto law of 80/20 principle which supports bankers

approach to establish and maintain relationships that counts. Taking an

illustration, the point can be explained. Suppose let us assume a

branch has a customer retention rate of 90% a year, loosing thereby

10% of customer every year. This would mean that the entire customer

base turns over every 10 years. If as a result of improved relationships

the customer retention rate improve to 95%. The customer base turns

over every 20 years a gain of 100% for a small increase in retention

rate of 5%.

The other economic benefits that may accrue by improved retention rates

are:

a) Reduced marketing costs

b) Better use of database

c) Increased opportunity for cross selling

d) Enhanced reliability of new customers introduced by existing

Clients.

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Customer Relationship Management (CRM) in Banking

CRM covers a wide range of products and interfaces (Front office

customer touch points to Back office integration and everything in between) -

Marketing automation, sales force automation, call center for customer

service, data warehousing and data mining which focus on decision making

etc. CRM follows both business and technology trend. CRM is a strategy by

which companies optimise profitability through enhanced customer

satisfaction. It involves process, technology and people issues. All the three

together really captures what CRM is. CRM enable people within the

organisation to interact with the customers, rather than enabling customers to

interact with the organisation. In e-CRM, handling transaction becomes a

seamless part of the relationship lifecycle say from e marketing to e-sales to

e-commerce to e-service. It is an enterprise wide effort a fusion of CRM

and e-commerce.

Future of relationship banking

A few of the changes affecting relationship banking are given below which

would portend the trends in future.

Shared lifestyles and values rather than income levels social class will be

one of the stronger bonds in banking relationships

Colour code to signify income levels and expenditure patterns will no

longer be confined to gold and platinum. There will be different types of

markets, based on social groups like pink market, green market, grey

markets, etc.

Customers will credit-score the banks as well as be subjected to credit

scoring by their banks.

Financial products and services will need to be redesigned to enable

customer to cope with the three ins of modern living

--- Instability

--- Information access

--- Instant gratification

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Digital money or E-cash will replace traditional money in the same way

plastic cards replacing cheques.

Virtual banks will takeover from the more substantial edifices.

All of this may be thought of as too far distant to require attention. Those who

take this stance may miss the essence of relationship banking. As poet Paul

Valery says: Future is not what it use to be. Banking is an industry under seize.

The key to success is in seeing the future in the present.

BRANCH BANKING

Overview:

The speed and efficiency offered by technology banking on the one hand

and the pressure on banks to reduce transaction costs on the other, has led to the

firm view that branch banking is a luxury which cannot be sustained in its present

form. While the need to rationalise and restructure the branch net work cannot be

disputed, the experience in implementing such a change has thrown up certain

areas of caution. They arise mainly from the following:-

Banks are built on confidence and trust, which arise out of human

relationships. The move from traditional banking to technology based

banking, therefore, should continue to provide for a mechanism to

maintain the element.

World experience has proved that the transition to click and bank has

been a painful process and many well-known names have had to

reestablish the brick and mortar branch as an essential part of

banking channels to co-exist with electronic delivery channels. Hence,

the new terminology click and mortar is gaining currency.

Allied to the entire process is the changing role of banks from merely

acting as facilitators of transactions in the financial system to providers

of value added services. This role transition will have to be integrated

in the rationalisation o branch network. This will have to be a holistic

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process involving a well-structured product and market segmentation

within the branch net work.

The expectation that switching to large scale electronic banking will

result in dramatic reduction in cost may not materialise at the initial

stagesof technology intake, as customers would demand both types of

services for a long time to come. Hence, profitability from technology

will have to be based on the drive for greater volumes and inducement

to customers for availing higher product ranges.

Closer to our context, the very strength of our banking lies in the branch

network built into the system over the past three decades, which, however, has

rendered it cost ineffective and over providing for transaction needs. Side by side,

it has also enable the banking system to remain the most preferred savings optionnext only to the postal savings for the household, providing a stable and low cost

supply o resources. The dilemma of branch rationalisation is having to carefully

match the need of the organisation to cut costs, optimize technology and yet retain

its retail cachet.

Branch Banking : The Transition Phase

Branch banking will essentially follow a certain pattern of transition from

transaction dispenser to relationship management center. While in financially

developed countries, this has been a series of stages of evolution for branches to

pass through, in our country, branches could be co-existing in all the stages

depending on the level of technology and location. Identifying and classifying

branches by their level of evolution and facilitating branches to migrate to the next

level wherever necessary is an important aspect in the process. Such an

approach will also provide better insights into consolidation of branch network and

prioritising technology implementation.

The transition stages as analysed in a study by IBM financial services in a

paper, The branch line to Better Banking, defines these as the six stages from

pure brick and mortar bank to customer relationship center.

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Old bricks. Existing branches are volumes heavy, cost burden and the

driver for their very existence is being challenged. The old bricks must be

replaced with efficient bricks to handle existing high volume, low value

transaction in the most efficient way. This first stage is to be an efficient

branch.

Self-service branch. As banks strive to manage cost, some o the existing

low value transaction-based services would be moved to a self-service model.

Multi-media branch. Most of the repetitions, labor intensive transactions

currently handled by tellers are automated. This not only cuts costs, but also

frees staff to provide more value added services.

Sales branch. Once expensive branch space and staff are freed from

handling the low value, high cost transactions, the branch can become a sales

center, selling products and services that produce revenue. The positioning

of the branch is moved from being a cost center to a revenue-generating

center.

Wealth management center. The branch moves on to become a high value-

added financial service center. It caters to sophisticated customers who no

longer simply look for transactional banking products and services.

Customer relationship center. The ultimate position of the branch is as a

customer relationship center; a place to manage and maintain contact with

customers. In the blurred competitive landscape of financial services

providers, the center also acts to ensure the continued visibility of a banks

brand and service offerings.l

The International Experience

Any study on the future of branch banking will have to be in the backdrop of

technology present and emerging and customers, preference towards technology-

based banking. Hence, at this stage, it is essential to analyse the experience of

the developed financial markets in implementing high -end technology, more

particularly internet banking, which is conventionally seen to be the ultimate

successor to traditional branch banking

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Some of the survey finds in Europe and US on the internet banking vis--vis the

traditional branch banking are truly revealing in terms of their responses.

Customers Preference and Technology

In Europe only 16 per cent of the people interviewed in a survey by Ernst

Young

Expressed a preference for stand alone Internet Bank., out of which 25% had

already started using internet banking. In France these rates fall to 8% and

1%, respectively.

76% of Europeans consider proximity in a branch is the ideal sort of

relationship with their bank.

Preferred Method for Dealing with Banking Products

(per cent)

Germany Spain France Britain Italy Sweden Europe

Phone 6 5 11 25 5 14 11

Mail/fax 2 1 4 5 3 2 3

Internet/online 5 3 2 5 4 7 4

Personal visit 86 88 80 63 84 76 79

No answer 2 4 4 3 4 1 3

A 1999 study in the UK showed that there remains a sizeable majority with

a genuine affinity for traditional, personal service and, in particular,

somebody who understands their problems. Any bank, which can combine

those offering without offending either camp by arbitrary withdrawal of

favoured deliveries, should prosper both in the short and longer terms

(Keith Howe, Partner, Nextlevel Associates.) Majority of US households use either two (26 percent) three (24 per cent) for

four (20 per cent) different delivery channels to conduct their financial

services business. Irrespective of the fact that a majority of US consumers

are now ready for on-line banking in technology terms, behaviorally, they

continue to be slow to migrate away from traditional channels like the local

bank branch or call centre.

IBM, which is helping United Financial of Japan Bank (UJF) in a substantial

branch renewal project for their 240 location branch network, have

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suggested the retention of the branch as the delivery unit and the

substitution of ATMs with Automated Consulting /contract machines to

perform a host of functions, including account opening, record updates,

unsecured loan application, etc. The process is designed to move from

branch re-engineering to branch transformation, which is about business

and managing customer relationship.

Preferred Transactions and Technology

A survey by PSI Global in 1997 revealed that branch banking coupled with

ATM network continued to account for 75 per cent of all retail transactions,

and another 17 per cent through phone banking.

Usages of Bank channels in U.S.

An analysis of Point of Sale debits as well as ATM usaes by type of

functions also reveal that customers preferred such of branch made facilities

only in the cases of transactions, such as withdrawal o cash deposit of

cheques and convenience of payment, at point of purchase.

27

ATM

39%

Phone

17%

Branches36%

Others

2% PC

3%

Mail3%


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The study also reveals continued preference for conventional off-branch

modes, such as telephone banking to make routine inquiries like balance

confirmation.

Substituting Branch Banking with Internet Banking

Institutions which sought to set up pure internet banking, based on the

premise that branch banking could be dispensed with, had to rework their

strategies and ultimately reverted to a physical presence in some from in order to

maintain customer comfort levels. These initiatives took the form of unconventional

physical outlets in tie up with super markets, petrol bunks, etc.

So powerful was the need of the customer to relate to a physical branch

environment that, instead of a pure menu driven screen, some internet banks have

simulate branches for internet banking thus offering potential customers the

chance to experience touch and feel banking as a way of attracting them to the

banks fold. Studies have also revealed that, of all the attempts to set up internet

banking, those started by established banks have been the most successful. They

have been able to leverage on their customer base by bringing in direct andindirect benefits through branches downsizing, diversification of services and leaps

in overall transaction volumes. Internet Banking to co-exist with Branch Banking

has come to stay. Combining their advantages and adding value to customers will

be the driving force which new entrants to Internet Banking can do well by carefully

structuring the products and services to drive home the advantage.

FACTORS INFLUENCING CONSUMER BEHAVIOUR IN BANKING :

Research and a study of factors that influence behavior ofcustomers in banking

indicates the following :

a) Location :

Where a bank branch is located often influences the choice of thebank.

Subconsciously the consumer is looking for convenience and what matters is whether

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the location of the branch is close to his home or office. Very often the bank next

door wins on that basis alone.

b) Safety :

Depositors are very often placing their hard earned money in a bank and a

worrying factor for them is, is the bank safe? To quell the fear, the background of

the bank, its promoters, international connections, the years it has been operating in

the country, all influence the choice.

c) Returns :

A consumer having satisfied himself that his money is safe wants to be sure

that the returns being earned are attractive.

d) Customer Service :

The experience of the customers when he has been within the branch

will influence a strengthening or a weakening of the relationship. Speed, politeness

and friendliness in the service are factors, which do matter.

e) Range of services :

With greater sophistication in the environment, a consumer gets more

demanding and would like his bank to offer a variety of services and products which

increase convenience for him e.g.: phone billing + ATMs or offer him greater choice-a

range of term deposit products which offers him high returns and liquidity.

f) Easy Documentation and well-defined eligibility criteria :

When a consumer wants to borrow from a bank, what bothers him is will I

qualify for the loan? So a bank will do well to clearly establish the eligibility criteria

and simplify and make loan documentation easy.

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Thus these factors are very essential for improving the business strategies of

banks.

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STRENGTHENING INDIAN BANKING

1. Fundamentals to make Indian Banking System stronger

The Bank Economists Conference has become an important annual events

for constructive interactions and informed debate on the state of our financial

systems. The theme chosen for every year provides an excellent opportunity to

reflect on the ground that has been covered in transforming Indian banking into a

vibrant, sound and a well functioning system. There are several elements that must

come together in order to make the Indian banking system stronger, efficient and

low-cost. These fundamentals include:

strengthening of prudential norms and market discipline;

adoption of international benchmarks as appropriate to our situation;

management of organisational change and consolidation within the

financial system;

up gradation of the technological infrastructure of the financial system;

and

human resource development as the catalyst of the transformation.

Some progresses have been made in each of these areas, yet some

concerns persist regarding the pace and quality of progress. Macroeconomic and

financial conditions around are also changing swiftly, posing new challenges and

lending urgency to accelerating the efforts towards vision.

2. Structural Changes in the Banking System

Banks are being encouraged to set up Investment Fluctuation Reserve (IFR)

accounts as part of prudent policies for utilising the gains from sale of investments

in securities in the current benign interest rate regime so that they are adequately

protected against any reversal of the interest rate environment. Realised gains

from sale of securities can be transferred to these IFRs, which vary between 5 and

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10 per cent of bank portfolios and qualify for inclusion in Tier-II capital. Unrealised

gains should not be taken to the income account or to IFR.

Financial systems worldwide are undergoing structural transformation.

Technological innovation, deregulation of financial services at the national

level, external financial liberalisation, and organisational changes in the

corporate would are some of the global factors driving the transformation.

Banking and finance in emerging economies is also caught up in this change. In

these economies, in addition to global developments, country-specific factors are

motivating the structural shifts. Consequently, two separate directions of reform

are evident. There is an expansion of the financial system due to vacation of

policy interventions in entry, exit and operations, the application of new advancesin information technology and in general, a greater emphasis on competition and

market-based outcomes. Almost contemporaneously, there is a strong drive

towards consolidation in a quest for exploiting core competitiveness and for

developing niche strategies.

In India, the primary force for transformation was structural reforms

launched in the aftermath of the balance of payment crisis of 1990-91. It was

recognised that a vibrant, resilient and competitive financial sector is vital for

sustaining the reform process in the real sectors of the economy. Significantly,

financial sector reforms in India were pre-emptive and proactive rather than a

result of banking crises, as has been the experience of several emerging

economies. Secondly, the momentum of change in the financial system has

been the motivation for upgrading the technological infrastructure in Indian

banking and finance rather than the other way round. Thirdly, competitive

pressure a major force of change worldwide has been reforms-driven rather

than a driver of the transformation. Finally, a large measure of the impetus for

change has come from reforms in the regulatory and supervisory regime and the

aspiration to apply international best practices to the country-specific situation.

The role of the public sector banks has come under close scrutiny in the

recent period. It is necessary to recognise that these banks have played a critical

role in the development of the Indian economy in the period 1969-90, particularly

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in the spread of banking and monetisation of the economy, the mobilisation of

savings and their allocation by plan priorities. For all economies in the early and

intermediate stages of development, credit markets face a persistent excess

demand, reflecting the existing resource constraints. Moreover, market processes

can well exclude the genuine credit needs of the weaker sections of society which

do not have the competitive strength to bid for funds in the market for bank credit.

Public ownership in Indian banking was intended to address both concerns i.e.,

the rationing of credit in the face of excess demand not cleared by the market, and

the channeling of bank credit flow to the economically disadvantaged sections of

society. Over the period 1970-90, a massive expansion of bank branches

occurred, and credit allocations ensured some equity in the distribution of bank

credit.At the same time, however, there was erosion in the financial health of

public sector banks and deterioration in the quality of customer service. Within the

ambit of financial sector reforms, therefore, the focus sine the early 1990s has

been on the viability, efficiency and competitiveness of banks and finanial

institutions. Liberalisation and deregulation has to go hand in hand with a greater

emphasis on consolidation, productivity, asset quality and profitability. There is

also an urgent need for Government to divest substantial shareholding to the

public so that these banks can respond effectively to changing market conditions.

Under the present circumstances, improvement in the cost structure of the banks

and work -culture are important priorities.

In order to enable the public sector banks to deal with the new capital

requirements as per international guidelines, recapitalisation was initiated in 1993,

aggregating Rs.20,446 crore by the end of the 1990s. The Verma Committees

recommendation that recapitalisation of weak public sector banks be

accompanied by conditionality relating to managerial and operational aspects of

the banks functioning was endorsed in the Union Budge, 2000-01. Accordingly,

in 2001-02, a sum of Rs.1,300 crore was provided to one of the weak nationalised

banks. Two of the weak banks have already turned around and are reporting

profits and a capital adequacy ratio of 9 per cent. The last one is also going

through a turnaround. Recapitalisation is associated with a monitorable reform

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programme and operational restructuring to ensure that flow problems in a banks

performance are dealt with.

Mergers have reflected efforts to reap economies of scale and scope

throughjoint production of financial services and one-stop delivery where

ever synergies in service supply can be exploited to lower costs of production. In

general, these mergers have come about as a result of government efforts to

restructure inefficient national financial systems.

A major structural change in our financial system is the infusion of

competition. The enabling conditions for a more competitive environment initially

took the form of shifts in the policy regime, Statutory pre-emptions wereprogressively lowered, interest rates were deregulated and restrictions on entry

and exit were eased. Financial markets were developed to enable financial

intermediaries to deal in assets and liabilities of varying maturities and risk

profiles. Activity restrictions ere eased and banks can now undertake various

types of activities reserved earlier for development financial institutions.

Within the banking system, there is heightened competition with the

introduction of new generation private sector banks. In January 2001, revised

guidelines were issued for entry of new banks in the private sector. Despite the

preponderant share of domestic banks in banking activity in India, foreign banks

have been a source of competition, at least potentially, given their use of

sophisticated technology, risk monitoring analysis and exposure management. In

recent years, the policy thrust has been to level the playing field for domestic and

foreign banks. For example, foreign banks that were earlier allowed to operate

only branches but not subsidiaries are now free to choose to set up either branhes

or subsidiaries under common banking regulation including lending norms.

Appropriate legislative changes are also under consideration of the Government.

Foreign direct investment up to 49% has been allowed in private sector banks and

up to 20% in nationalised banks. Guidelines have been issued for the entry of

banks into insurance business either as joint venture participants or to take up

strategic investment for providing infrastructure and services support without any

contingent liability.

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COMPETITION FACED BY BANK

Faster disintermediation and progressive liberalization of entry norms in

the post-reforms era have taken competitive pressures to a new high. Market

share analysis for the last eight years points to discerning decline in the market

share of public sector banks. Between 1992 and 2000, PSBs have suffered

more than 9% decline in their market share.

Their market share has come down from 85% to about 79% over the

period. Major gainers have been the private sector banks, with more than 7%

enhancement in their market share. The decline in market share is on expected

lines, as banks continue to face stiff competition from even some of their non-

banking counterparts, such as, mutual funds, capital market, insurance sector

etc.

Creditably banks have been putting their best foot forward to cope up

with whatever adversities competition has thrown up. Till recently, a very

dominant segment of the financial system, public sector banks are being givena run for their money, by way of stiff competition. The outcome, however, has

been a meticulous reorientation in their strategies and business focus. Most of

these banks are on a fast track towards becoming techno-savvy and

customer-centric. There is conscious move to down size operational domains

and optimize functions to cash on the opportunities arising out of competition.

The essence of competitive strategy, as said by Michael Porter, is to relate the

company to its environment and to find a position where the company can best

defend against these competitive forces or can influence them in their favour.

At present, a strategic shift is already visible and hopefully, it will usher in an era

of strong and sound banking, well compliant with international best practices. It

is essential that the strategic focus

continues to keep banks on guard against erosion in market share and at the

same time, inspire them to innovate business. As aptly stated by Gary Hamel

in his book, Rethinking the future, simply catching up to where others

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have been is necessary to stay in the game, but the winners will be those who

have ability to invent fundamentally new games.

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RE-ORIENTING STRUCTURE:

A MODEL FOR INDIAN BANKS

The need for Organizational Restructuring

The business environment in which Indian Banks have to operate has

become highly competitive. The average population per bank branch can gauge

the extent of competition among banks in India. The average population per bank

branch, which stood at 64,000 in 1969, dropped in 15,000 in 1997 and in some

areas this ratio was as low as 6,000 people per branch (Source RBI). Since more

banks cater to a given population, the savings of the population get distributed

amongst various banks, which leads to competition among banks for deposits.

Customer Service What does it mean?

Since banking is a service industry where no tangible product is

produced, the quality of the service provided to the customers will be determined

by (1) Timelines; (2) Courtesy; (3) Responsiveness; and (4) Assurance for

discharge of obligation in letter and spirit.

The foremost criterion of quality in the services sector is its time orientation.

The quality of a service is very much related to the time within which it is rendered.

Delays frustrate customers and a bank will be perceived as being bureaucratic

when there is delay in decision taking. For instance, customer service suffers

when there is a delay in the sanction of loan proposals submitted at a branch as

they have to get cleared at the zonal and the head office level

In banking, the product itself is the service rendered by people. The human

element and the psychological aspects of handling a customer are an important

aspect of service quality. It is very important to provide personal attention to the

needs of the customer. Communication with the customers in the language they

understand and listening to the customer is a service quality characteristic.

The possession of the required skills and knowledge to perform the

service are highly necessary. Very often, one finds people manning the front

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desks, with little knowledge of how to guide the customers. Their very first contact

with the customer leads to a frustrating experience.

For any query from the customer, what is important is how quickly the

customer gets the answer rather than from what level it comes. A late reply from a

general manager is of less value to the customer than a quick one from a person

manning the front desk. Towards this end, empowering people and flattening the

hierarchies in an organization becomes very important for providing superior

customer service. Ultimately, the quality of product or service is produced by the

front line operator.

Customer Centric OrganizationAny business organization exists as long as it is able to provide services that

have more value to the customer than the cost incurred by the organization for

providing these services. To be efficient and successful, the organization will

have to aim at anticipating customer needs and satisfying these needs.

Superior customer service can be provided by the banks only if the present

functional organizational structure found in most banks is re-oriented into a

customer centric organizational structure. In the traditional functional organization

found in most banks, employees tend to develop a narrow outlook wherein they are

interested only in the matters concerning their own department. This type of

functional organization in which work in the bank is structured into various

departments such as Legal Department, Credit Department, Trade Finance etc.,

results in an inward looking organization where employees develop a rule book

work ethic and often lose touch with the customer. In order to become competitive

such organizations, which have developed an inward focus because of their

functional structure, will have to re-orient their structure and focus on servicing the

customer. One such organizational structure, which ensures superior customer

focus, is the customer centric organizational structure.

As a philosophy of doing business, the customer is put at the center of the

organization in a customer centric organization. In a customer centric organization,

customer information goes beyond the Marketing Department of the organization to

permeate every department of the organization.

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Every employee will have to be trained to think that the customer comes

first. Employees of all departments will have to be explained how their jobs relate

to the sales function. Everyone in the organization will have to relise that

everybodys salary comes out of the revenue generated from sales resulting from

providing customers with services that are required by them. The job descriptions

of every employee will have to clearly bring out the customer connection.

Employees will have to be explained how each position is a part of an overall

customer support system. Thus, in a customer centric bank, the employee

conducting the credit appraisal will know that if there is delay in the appraisal, the

client is likely to approach another bank. Loss of a good loan account will affect

the interest earnings of the bank which isn turn will affect his own earnings. Sinceall employees are explained the customer connection in a customer centric

organization, they realise that they are paid in part by the customer. Therefore, all

the elements of a customer centric organization will have to be geared towards 1)

developing relationships with customers, 2) focusing on customer satisfaction, 3)

providing services of value, 4) measuring and reporting customer satisfaction and

5) researching and concentrating on customer needs.

The Organization Structure of a Customer Centric Bank

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The Structure of the Branch

The basic building block of a customer centric organization is the customer.

The activities in a customer centric organization will be grouped on the basis of the

type of customer to be serviced. Therefore, the organization will be subdivided into

customer groups and all the activities within the organization will revolve around

accomplishing the tasks that are required to fulfill the needs of the customer. In the

case of bank, the main customer groups on the advances side of the business

would be 1) SSI customers, 2) multinational customers 3) service organization, 4)

non-profit organizations 5) big Indian corporate customers, 6) housing customers,

7)consumer durable customers etc.

The customer groups will be largely autonomous and the in- charge of the

customer group will have full power to decide on the matters pertaining to the

activities within the customer groups and will run the groups as if they are

independent business. There will be a pronounced decentralization from the head

office and each customer group will be delegated powers needed to make the

decisions concerning its own operations. The in-charge will control the operations

within the customer group and determine the strategy for servicing the customers.

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HUMAN RESOURCE DEVELOPMENT AS A STRATEGIC TOOL IN

ORGANIZATIONAL TRANSFORMATION OF INDIAN BANKS

Human Resources Development

Rightsizing manpower has been making better sense, especially in the

competitive and cost conscious work culture. This is more so for the public sector

banks, which have a workforce in excess of eight lakhs, even in the post-VRS

scenario.

Human capital holds utmost significance in service institutions like banks,notwithstanding the spread of technological revolution. Banks have also been

given autonomy in many aspects of human resources though such autonomy has

not found adequate wherewithal so far. In the emerging banking order, human

resources development initiatives will need to be strengthened, among others, on

the following lines:

Effective usage of autonomy in manpower policies.

VRS was a novel beginning, yet, it led to the exodus of talented expertise as

well.

Objective manpower planning is required to ascertain the clear number for

the banks to work with. Such an issue was missing during the recent VRS

Scientific framework for assessing the value and contribution of specific rank

and file.

Outsourcing, especially of specialised manpower, for technology as well as

product functions.

Toning up training functions and inculcation of quality movement.

Restructuring organization tiers for faster decision making, akin to the same

in a networked environment.

Empowerment policies and adequate delegated powers for swift decisions.

Performance linked reward system that will seed out excessive manpower

and allure fresh talent.

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Likely legal reforms, especially in the realm of labour laws, will provide an

enabling environment to banks for bringing radical changes in the

manpower policies.

In the above backdrop, it is apt to quote Dr. Bimal Jalan, Ex-Governor, Reserve

Bank of India. India must remain in the forefront of the movement for ensuring

soundness of the banking system by adopting best practices and best

international standards of performance and prudence. The challenge now is to

accelerate this process so that the banking and financial system in our country

can contribute to the sustained growth of the real economy.

SWOT Analysis

It is obvious that the Indian bank will have to make a SWOT analysis

(strength, weakness, opportunities and threats) and then evolve a strategy based

on building on strength overcoming weakness and exploiting opportunities and

guard against threats. The strength of the Indian banks is the pool of human

talent it has. If we take a bank like the State Bank of India, we find that it has

probably been able to provide leadership for many of the large nationalised banks.

Banks like Corporation Bank have been in the forefront so far as computerisationis concerned. These are the strengths. At the same time, apart from the pool of

talent and the human capital it represents, banks are also extremely over-manned.

VRS initiatives that have been taken by the banks have opportunities but

they will have to think in terms of also what to do post-VRS.

Many observers have commented upon the unexpected positive response

to the VRS scheme of the public sector banks. The point has been made because

this was possible because the managements of the banks were given the freedom

to take decisions and finalise their VRS scheme. Even the unions are not in a

position to dissuade their members from not accepting the VRS. Estimates have

even been made that up to even 15% o the staff strength could be reduced.

This was a good beginning. But then the most important challenges will

come to the banks especially in the context of increasing competition about

what will happen after the VRS. The first point for consideration is while

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immediately there will be no recruitment to the banks which have downsized

through the VRS, still the normal retirement process and the retirement vacancies

that arise may result in the need for recruitment. Thanks to the follow up on the

CVCs guidelines that at 70% of the banking business must be computerised by

1.1.2001 at least 12 of the 27 banks have reached the target and more are likely

to reach the target before March 2001.

The question is, will the banks now go for bank-wide computerisation so that

the real purpose of computerisation is achieved in terms of improving customer

service, improving competitive and of course frauds and corruption? The

Syndicate Bank, which is one of the banks, which have reached the target,

indicates that perhaps in the current they may go in for bank widecomputerisation. If these efforts are going to be made by other banks, the

question will arise that the staff needed for manning these computerised banks

would be of a higher quality. After all after paying so heavily for the VRS, the bank

managements must be able to recruit the best possible candidates available in the

market particularly those who are IT savvy. This will mean that the recruitment

rules will have to be modified and the quality that required for manning a

computerised bank in the age of information technology should be insisted upon.

Qualified human capital will not be available cheaply. This will mean that a

different approach will have to be taken for the salary to be paid to the recruited

staff. If the qualities are different and the banks are able to compete with the

private sector banks how are they going to match the issue on pay and

perquisites. This brings us to the next issue of will the bank managements be

permitted to have more flexible compensation system so that the recruitment is

made of people suitable for banking in the knowledge economy and who will be

able to get atleast comparable pay scales as that in the private sector.

In short, post VRS, banks must be able to systematically focus on bringing a

change in the work culture of the bank so that they are able to meet the new

challenges in the increasingly competitive environment. I wonder whether the

bank managements are thinking on these lines.

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The next weakness of the banks is lack of computerisation. I must place on

record my appreciation of the manner in which the Indian nationalised banks rose

to the occasion to meet the target set by the CVC of 70% of the business being

covered by computerisation by now. It is seen that about 12 banks have already

achieved the target and the rest hopefully may reach the target a few months.

Computerisation in turn brings it own risks. The Reserve Bank of India identified

the various types of risks that come from computerisation. After this kind of

environmental scanning, banks have to make a SWOT analysis, i.e., they must

analyse their strengths, weakness, opportunities and threats.

Strengths: These are the positive attributes of an organization, which provide a

cutting edge in competing with others. To illustrate, a new private sector bank,being a recent entrant, has the strength of highly educated and young technology

savvy workforce as against other banks, which have strengths elsewhere. A keen

awareness of strength will provide a direction for growth and development.

Weakness: Some weaknesses are built in and, in some cases, they emerge.

Nevertheless, weak areas prohibit from achievement. A lack of strong leadership,

lack of organizational commitment is areas, which need to be understood. First of

all, we must reduce the impact of weaknesses on our performance. Later, we

must convert them into strengths.

Opportunities: Liberalization has opened up several opportunities for

organizational growth as well as personal growth. The human resource

development policies must aim at integrating personal development of individual

with that of banks long range corporate plan so that banks as well as individuals

gain from the exercise.

Threats: These are extreme situations into which organizations will be driven if

they ignore several warning signals given by the environment. A clear notion of

what threats are in store if we do not perform well will substantially alter the

human resources response to stimuli. Coming back to the theme of the paper,

the challenge before the Indian banks today is how to bring about an

organizational transformation. Changing the culture of the organization can

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essentially do this. Culture here is a set of beliefs, attitudes, ideologies that guide

the behaviour of people in the organization. It is here that the concept organization

development and institution building becomes highly relevant.

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RE-ENGINEERING OPERATION

(Product, Process and Pricing)

The Indian banking industry is more than a century old nd all along till a

decade ago financial products offered by the banks were simple and traditional.

Banks looked at the market with blinkers on and as a result of which imagination

and aggressiveness took the back seat. Banking industry saw a tremendous

growth in terms of its network and business volumes without any significant

marketing efforts.

The range of products too was limited. Most of the products/services

offered were similar in features across the banks in the industry and the regulator,

giving no scope for any competition between the players controlled interest rates.

The only parameters, which were left out, were the quality of customer service

and delivery of customer service. Consumers were captive and had no

alternative but to accept what was offered to them by the industry.

In the beginning of the last decade, as the Indian economy progressed

towards liberalization and with the advent of technological revolution, the regulators

opened the vistas to the players, which totally changed the face of the industry.

These factors ignited the engine, which moved forward the financial services

industry by leaps and bounds at a greater speed. The industry extended its arms

in multi-directions against the induced competition from non-banking finance

companies and new private sector banks.

Need for Re-engineering

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The combined effect of the above mentioned developments brought a

tremendous change in the attitude of the service provider and the consumer.

Banking is now turned into buyers market and the customer could demand not

merely necessities but also luxuries. The banks are under constant pressure as

the financial news papers and journals too contributed on their part to provide an

easy acess to the customers on latest trends in the industry and forced the players

to be on their toes to manage customers demands.

At present, banking is no longer about money alone as even customers

financial management is being adopted by offering better delivery options from

time to time. Only those who can foresee and fulfill customers requirements andcommunicate faster could be the winners. It is, therefore, unwise for banks of any

size to think that they can remain immune to current trends and re-engineering

operations is the tool to sustain the marketing efforts to meet the challenging needs

of todays customer for the players to survive in the industry.

1 Re-engineering Requisites

Now, the customers have choice of banks and a variet

project on various business strategy

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