By Rishi Mehra
The 1980s and the early 90s were a time when public sector banks ruled the roost in the country. Operating in an environment that insulated them from external competition, shocks and backed by the government, these banks in return primarily operated to fulfill the government mandate in terms of lending, borrowing, deposits and developmental needs.
Things, however, changed as the Indian economy opened up and large foreign banks set up branches in the country. This was closely followed by Indian private sector banks setting up operation that were efficient, process driven and above all customer friendly. At the same time the erstwhile privileges enjoyed by public banks vastly diminished as government encouraged private players to undertake development needs. Opening of the markets means people suddenly had access to better financial instruments in the form of both equity and debt and no more dependent on public sector banks. Facing completion on three fronts, the banking industry in the country changed quite dramatically.
Customer is king: Banking industry is mostly a customer focused business and it is almost certain that a customer who has had a bad experience with a bank would never want to avail its services. Private and foreign banks were quick to latch on to providing great customer service while public sector banks with long queues and indifferent staff were the clear laggards. Belated as it may be, all banks realized good customer service is the only way to grow the business. With this is mind banks started making an earnest effort to reduce customer pains, while at the same time ensuring their lending and deposit rates are in sync with the market demands. In a sense competition ensured customers did not continue to receive the wrong end of the stick.
Role of Committees: The direct fallout of the need to have good customer service was setting up of several committees to look at key issues in the banking segment. As banks realize going ahead, it is not the government, but the customer who is going to decide their fate, they felt an urgent need to revisit customer service standards in banks through various committees. Leveraging technology, schemes for corporate and individuals, strengthening the credit process, and improving the grievance redressal mechanism by setting up the Banking Ombudsman Scheme were some of the key improvements. Recommendations made by these committees have been largely responsible for the changed nature of banking services in the country.
ATM: ATM was introduced by HSBC in Mumbai as way back as 1987 but not until the late 1990s did most banks wake up to its potential. In a bid to reduce lengthy queues at branch tellers, banks started installing ATMs. Banks levied charges for ATM usage early on but once these were revoked, there was an explosion in the growth of ATMs by banks across India. Today, almost every city and many villages are equipped with ATM facilities. ATMs have also evolved from being a machine that merely dispenses cash to offer services like payment of utility bills, funds transfer, recharging mobile connections amongst others.
Technology: Technology has been leading the vanguard as banks scramble to offer the best in the face of heightened competition. The Reserve Bank of India, on its part, had prepared an IT Vision document 2011-17 that talked about the roadmap for commercial banks to migrate to core banking solutions, use of MIS, reporting standards, financial inclusion and flow of information between banks and the regulator.
While every move may not have been necessary because of competition and in some cases, evolutionary in nature, it is certain that customer facing banks needed to be on top of technology, messaging and networking. Private bank ICICI was the first to roll out Internet banking in the country and very soon every bank in the country has been forced to offer services online, thereby greatly increasing ease of use.
Mobile and Internet banking: Globally Wells Fargo was the first bank to allow internet banking for its customers in 1995 and soon mobile and the Internet changed the way we bank. Although limited in its adoption and being mainly concentrated around metro cities in India, both mobile and internet banking have increased cost effectiveness for banks and made banking services available at the click of a button. Private banks were the first to latch on to internet and mobile banking but it has quickly changed from being a product of novelty to one of necessity. It has also made small transactions viable and many banking services could be performed instantaneously. After ATMs, both mobile and internet banking considerably reduced the load on the branches. Banks realized such services appealed to the youth of the country who loath going to the branch to carry out transactions. Off late banks are also targeting the pensioners and elderly with mobile and internet banking, as they look to increase market share. According to RBI India has 13-14 % Cash to GDP ratio and banks have found that handling cash only increases their cost of operation. Money flowing through the system in a digital and electronic format augurs best for them.
Product innovation: As competition has increased, margins have come down. While interest rates on loans many still be robust, the cost of running banking services is also high. As a result, banks are forced to innovate to find new sources of revenue. This has meant banks have diversified to provide investment and merchant banking services. Yet, others have diversified into segments like General Insurance and Mutual Funds to open new channels of revenue. This also allows a bank to offer more products to their existing and new discerning clients. Similarly, it allows banks to offer clients products with different and better rates or returns.
Economies of scope: Competition has also led to co-operation. As the cost of running banking services increase, banks are now opting to pool resources. An example of this is banks opting to pool their resources when it comes to making ATMs available to their clients. Banks have realized that to reduce costs and increase efficiency, there are areas where it makes sense to cooperate, while it looks to ward off competition from others in the space.
Competition in the banking space has also taken banking services to the previously unbanked as banks look to increase their market share. Rapid deployment and adoption of features like ATMs, debit cards, telephone, internet and electronic banking has been largely possible as banks looked to outbid each other. In future we will continue to see many more innovative features as banks consider them a key marketing tool in their quest to keep the competition at bay.
(Author is co-founder deal4loans.com. Deal4loans.com is a platform for online comparison for retail loans in India. Views expressed are personal.)
The 1980s and the early 90s were a time when public sector banks ruled the roost in the country. Operating in an environment that insulated them from external competition, shocks and backed by the government, these banks in return primarily operated to fulfill the government mandate in terms of lending, borrowing, deposits and developmental needs.
Things, however, changed as the Indian economy opened up and large foreign banks set up branches in the country. This was closely followed by Indian private sector banks setting up operation that were efficient, process driven and above all customer friendly. At the same time the erstwhile privileges enjoyed by public banks vastly diminished as government encouraged private players to undertake development needs. Opening of the markets means people suddenly had access to better financial instruments in the form of both equity and debt and no more dependent on public sector banks. Facing completion on three fronts, the banking industry in the country changed quite dramatically.
Customer is king: Banking industry is mostly a customer focused business and it is almost certain that a customer who has had a bad experience with a bank would never want to avail its services. Private and foreign banks were quick to latch on to providing great customer service while public sector banks with long queues and indifferent staff were the clear laggards. Belated as it may be, all banks realized good customer service is the only way to grow the business. With this is mind banks started making an earnest effort to reduce customer pains, while at the same time ensuring their lending and deposit rates are in sync with the market demands. In a sense competition ensured customers did not continue to receive the wrong end of the stick.
Role of Committees: The direct fallout of the need to have good customer service was setting up of several committees to look at key issues in the banking segment. As banks realize going ahead, it is not the government, but the customer who is going to decide their fate, they felt an urgent need to revisit customer service standards in banks through various committees. Leveraging technology, schemes for corporate and individuals, strengthening the credit process, and improving the grievance redressal mechanism by setting up the Banking Ombudsman Scheme were some of the key improvements. Recommendations made by these committees have been largely responsible for the changed nature of banking services in the country.
ATM: ATM was introduced by HSBC in Mumbai as way back as 1987 but not until the late 1990s did most banks wake up to its potential. In a bid to reduce lengthy queues at branch tellers, banks started installing ATMs. Banks levied charges for ATM usage early on but once these were revoked, there was an explosion in the growth of ATMs by banks across India. Today, almost every city and many villages are equipped with ATM facilities. ATMs have also evolved from being a machine that merely dispenses cash to offer services like payment of utility bills, funds transfer, recharging mobile connections amongst others.
Technology: Technology has been leading the vanguard as banks scramble to offer the best in the face of heightened competition. The Reserve Bank of India, on its part, had prepared an IT Vision document 2011-17 that talked about the roadmap for commercial banks to migrate to core banking solutions, use of MIS, reporting standards, financial inclusion and flow of information between banks and the regulator.
While every move may not have been necessary because of competition and in some cases, evolutionary in nature, it is certain that customer facing banks needed to be on top of technology, messaging and networking. Private bank ICICI was the first to roll out Internet banking in the country and very soon every bank in the country has been forced to offer services online, thereby greatly increasing ease of use.
Mobile and Internet banking: Globally Wells Fargo was the first bank to allow internet banking for its customers in 1995 and soon mobile and the Internet changed the way we bank. Although limited in its adoption and being mainly concentrated around metro cities in India, both mobile and internet banking have increased cost effectiveness for banks and made banking services available at the click of a button. Private banks were the first to latch on to internet and mobile banking but it has quickly changed from being a product of novelty to one of necessity. It has also made small transactions viable and many banking services could be performed instantaneously. After ATMs, both mobile and internet banking considerably reduced the load on the branches. Banks realized such services appealed to the youth of the country who loath going to the branch to carry out transactions. Off late banks are also targeting the pensioners and elderly with mobile and internet banking, as they look to increase market share. According to RBI India has 13-14 % Cash to GDP ratio and banks have found that handling cash only increases their cost of operation. Money flowing through the system in a digital and electronic format augurs best for them.
Product innovation: As competition has increased, margins have come down. While interest rates on loans many still be robust, the cost of running banking services is also high. As a result, banks are forced to innovate to find new sources of revenue. This has meant banks have diversified to provide investment and merchant banking services. Yet, others have diversified into segments like General Insurance and Mutual Funds to open new channels of revenue. This also allows a bank to offer more products to their existing and new discerning clients. Similarly, it allows banks to offer clients products with different and better rates or returns.
Economies of scope: Competition has also led to co-operation. As the cost of running banking services increase, banks are now opting to pool resources. An example of this is banks opting to pool their resources when it comes to making ATMs available to their clients. Banks have realized that to reduce costs and increase efficiency, there are areas where it makes sense to cooperate, while it looks to ward off competition from others in the space.
Competition in the banking space has also taken banking services to the previously unbanked as banks look to increase their market share. Rapid deployment and adoption of features like ATMs, debit cards, telephone, internet and electronic banking has been largely possible as banks looked to outbid each other. In future we will continue to see many more innovative features as banks consider them a key marketing tool in their quest to keep the competition at bay.
(Author is co-founder deal4loans.com. Deal4loans.com is a platform for online comparison for retail loans in India. Views expressed are personal.)
Source:-The Economic Times
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