CHAPTER TWENTY ONE
Innovations in Products and Services—Cases of Three Banks1
KEY TAKEAWAYS FROM THE CHAPTER
Understand the recent changes in the banking sector with reference to a UK-based multinational bank (Barclays Bank), joint venture bank (ING Vysya Bank) and India's no.1 public sector bank (the State Bank of India)
Learn the process of product differentiation in the banks
Gain knowledge about the features of similar products
CASE STUDY I
(By, Radhika Basu and Prof. Justin Paul)
Barclays is an international financial services group engaged primarily in banking, investment banking and asset management. In terms of market capitalization, Barclays is the third largest financial services group in the UK.
The group operates in many other countries with a very large international presence in Europe, the USA, Africa and Asia. It is a leading provider of global services to multinational corporations and financial institutions in the world's main financial centres.
With over 300 years of history and expertise in banking, Barclays Plc has five major divisions. The functions of these five divisions are discussed as follows:
This provides solutions to Barclays' UK retail and business banking customers. Customers are served through a variety of channels comprising the branch network, cash machines, telephone banking, online banking and relationship managers.
It is managed through two business areas: UK retail banking and UK business banking.
This is one of the largest global credit card companies with 14.9 million credit card customers around the world.
This is a leading global investment bank which provides large corporate, institutional and government clients with solutions to their financing and risk management needs.
Barclays Global Investors
This is one of the world's largest asset managers and a leading provider of investment management products and services.
Barclays Wealth Management
This has over £74 billion of customer funds under management. Businesses include the following:
Barclays Stockbrokers It is the largest ‘execution only’ stockbroker in the UK. Barclays Private Bank offers a full service private bank to high net worth clients in the UK and abroad.
Barclays Financial Planning This provides regulated financial planning advice on life, pensions and investment products. Its financial planning managers can offer customers expert advice and access to leading financial providers from across the market. International banking provides offshore banking services for individuals and corporate customers.
International Retail Banking This provides a range of banking services, including current accounts, savings, investments, mortgages and loans, as well as services to corporate customers across Spain, France, Portugal, Italy, Africa and the Middle East. Barclays operates in over 800 international branches under its own name.
Performance and Governance
Since corporate governance continues to be a subject of intense interest to shareholders, regulators, companies and the press, Barclays has complied with the provisions of the new combined code. They have taken a number of steps to further enhance their corporate governance practices.
The financial performance is built on a clear and simple understanding of what Barclays exists to do—lend, invest and protect money—for customers and clients of all kinds. By doing this, they achieve the overall business purpose—to help customers and clients achieve their goals and, thereby to create value for them and earn their loyalty.
Products and Services
A summary of various products and services offered by the Barclays Bank are provided in the chapter. Barclays Bank has specific current account products for each and every need in the current account segment. Various accounts offered by the bank are highlighted here.
Barclays Bank Account (BBA) The basic Barclays Bank Account is known as BBA and can be applied over the web or several means including manual. Basic accounts like BBA can be later upgraded to add other facilities easily. All current accounts are by nature, eligible instantly for cheque books. Also there are no charges when in credit and for the regular statements.
The other features of the BBA would vary from country to country. The salient features of BBA in UK are as follows:
- Personal overdraft of up to £5,000 depending on the account status and agreed terms.
- In case of overdraft, the account owner need not pay any interest till he/she uses the facility.
- Debit card facility: Through this, an account holder can get up to £50 at supermarkets or shops offering cash back.
- An account holder can withdraw up to £300 per day at Barclays and Woolwich cash machines, provided the customer has sufficient funds.
- No transaction charges when using the debit card in cash machines abroad belonging to the bank's global alliance.
Young Persons Account (YPA) Young Persons Account is a current account facility tailor-made for the age group of 16–19 with extra benefits. The product features are provided as follows:
- The account holder can hit the high street or shop online with the Visa Electron card wherever you see the Visa Electron sign.
- He can withdraw up to £300 a day with a Visa Electron card at any Barclays or Woolwich cash machine or wherever he sees the Plus sign.
- An account holder can arrange to have paid an allowance or salary direct into his account from another.
Barclay Plus Account (BPA) The Barclay Plus Account is designed for the people in the age group of 11–15 who want to manage their money better. The most important features of this type of account are as follows:
- Easy to open with just £1.
- Tiered interest rates: The more the account holder saves, the more he earns.
- Debit card: Customers could use a Visa Electron card to shop on the high street if he gets his guardian's permission.
Cash Card Account (CCA) The Cash Card Account is for someone who wants an account and does not want a cheque book. The CCA is a bank account offering basic banking facilities without a cheque book. This concept is working well in countries like UK and Japan. Salient features of the product are as follows:
- Customers can withdraw up to £300 a day at Barclays or Woolwich cash machines. They can use the cash card to withdraw money in post offices.
- Customers can transfer money to other accounts by phone, 24 hours a day.
Student Account Student accounts are designed to help students make maximum out of student life. The product comes with a range of offerings and features.
Attractive features of the ‘student account’ include the following:
- Free mobile phone insurance for the first year of study.
- Twenty per cent discount on restaurants.
Student Barclay Card This product is designed to help students manage their money throughout their university life. Significant features of the product include:
- Up to £600 opening credit limit with regular reviews.
- 56 days interest-free credit on purchases for payment of balance in full and on time.
- Optional payment breaks for when students are stretched.
Graduate Package This product is designed to help graduates when they are starting off their careers. The basic account in this package is called as ‘Graduate Additions’, which comes with features worth up to £382 all for just £5 a month, including the following:
- Green Flag Roadside Assistance including ‘home-call’.
- Comprehensive mobile phone insurance.
- Twenty per cent discount at selected restaurants.
Higher Education Account This is a current account with no monthly fee and is designed for students who are pursuing their higher education. The account helps students bridge the gap till they settle in their lives.
Career Development Loan This is for people who want to take a career development course (either full-time or part-time) to improve their career prospects. Important information about the loan is mentioned as follows:
- One can borrow from £300 up to £8,000.
- Payments remain fixed when the loan is agreed upon.
- Interest-free for up to 1 month after the end of the course. After the interest holiday, the rate would go up two or three times roughly.
- Customer need not pay back until 2 months after the course is complete.
- One can repay the loan over a period of 12 to 60 months.
Professional Studies Loan This loan is for students who want to study a full-time course to gain a professional qualification. The students need not pay anything up to 9 months after the completion of the course. Salient features of the product are follows:
- Repayment terms range from 1 to 5 years or up to 9 years for loans over £10,000.
- Customer can borrow up to £25,000.
Barclays Personal Loans
Barclays unsecured personal loans: Barclays Bank offers various loan schemes each of them tailor-made to suit a particular need. The broad categories of the loans are secured loans and unsecured loans. Most of the bank's customers are pre-selected for unsecured as well as secured loans.
Barclay secured loans: These loans are designed to help home owners or any other property owners who are looking for a loan in the range of £20,000–100,000. Some of the product features are as follows:
- The product is available for home owners, employed people, self-employed people.
- Early repayment charge of two months additional interest.
Insurance Products Various Barclays insurance products are summarized as follows:
Online banking: Barclays’ online banking services enable every account holder to use all the facilities online. Various features of online banking include the following:
- Pay bills to bank accounts
- Pay money into other UK bank accounts.
- Check statements and account balances.
- Set up or change standing orders and cancel direct debits.
- Set up or increase overdraft.
- Apply for a Barclay loan.
- Open an e-savings account and apply for a savings bond.
- Apply for and amend any part of open plan.
- Download account information to software packages.
- Get e-mail updates.
Mortgages: Barclays offers mortgages in simple terms for a value-seeking customer. Simple features of mortgage products would include no higher lending charge, mortgages are subject to valuation (maximum loan-to-value 95 per cent, re-mortgages 95 per cent or less than 90 per cent with a mortgage reserve), a first charge over property is required, a strongly recommended life assurance in place to cover the full amount of all sums that may be borrowed under this facility, mortgage is available on an interest only and/or repayment basis. Complete set of services are provided for all customers whether they are first time buyers, existing customers, re-mortgaging or moving homes.
The rates offered are both fixed and discount rates. Fixed rate is one where the interest rate remains the same during a fixed period of a loan. The customer gets peace of mind as monthly payments will stay the same for the period during which the rate is fixed. The customer has the flexibility to pay off up to a set amount per year with no early repayment charges or take a payment holiday, subject to the availability of a mortgage reserve.
Open plan: Innovative products like ‘open plan’ have been made for the convenience of the customer so that he can save money. Money manager helps in taking the spare cash from the current account and moves it into a savings reserve account where it earns extra interest. Open plan savings helps create a number of savings ‘pots’ to help save for specific things. All the balances in the pots are combined to give the best possible interest. Offset mortgage helps by offsetting the spare cash in the current and savings accounts.
Protection and pensions: These plans are designed with the help of legal and general experts to offer the best covers for the customer and his family. The packages are in the form of life cover, which provides a lump sum in case of death; stakeholder pension, which gives a pension with low charges and flexibility; Critical illness, where a cash lump sum is given if one suffers from a specified illness; income protection, which provides regular income in case of inability to work apart from other financial advices for the needs of the customer.
Travel services: These cater to the customers travel and international needs. Travel-related products would include getting commission-free foreign currency and travellers cheques with free home delivery, travel insurance with preferential rates for both single and multi-trip policies online. Global alliance, which helps save money when withdrawing money from cash machines around the world, comprehensive international banking solutions, assistance in buying property in Europe and expert advice on all travel-related questions.
Barclays Platinum card: This card allows a zero per cent balance transfer from 10 months after opening the account. Emergency card advance and emergency card replacement, fraud protection, optional payment protection insurance, online account management, 24-hour customer service and optional everyday cover are also being offered.
Platinum banking: Platinum banking is for customers who hold a number of products with Barclays Bank. There is no charge—it is the bank's way of saying thank you for banking with them. They get valuable extra benefits, including preferential rates and higher spending limits.
Savings and Investment
Easy Access Savings The easy access accounts cover short-term savings. The customer does not have to give notice to get his money and interest rates reflect the way he saves.
The ‘easy access savings’ are classified as follows:
- E-savings: It provides instant access to funds and instant transfers online between Barclays online accounts.
- Reward saver: It provides instant access and also a higher interest for the fewer withdrawals one makes.
- Regular savings: An account that rewards the customer for saving regularly. It can be opened with as little as £25 and restricts one to two withdrawals a year.
- Tracker savings: It links the interest rate the customer receives to the Barclays’ base rate, so his savings keep pace with the latest changes. Balances of £10,000 and over will track the Barclays’ base rate by the guaranteed percentage rate.
Open Plan Savings One can pool his savings to get better rates. Open plan savings lets the customer create a number of savings ‘pots’ for specific purposes, such as a wedding or new car. The pots’ balances are combined to give the customer a potentially higher interest rate on total savings. The customer can combine open plan savings with ‘money manager’ to automatically move spare cash from his Barclays current account into open plan savings. The customer could also use open plan savings to offset an open plan mortgage. This could cut years and thousands of pounds off his mortgage instead of earning interest on savings.
Savings Bonds The bonds provide guaranteed fixed interest rates for the term of the bond. The customer can open a bond with just £2,000 over a term ranging from 1 to 3 years. However, he can withdraw money during the term of the bond.
Children Savings Barclays provides several ways to save for children, including the Government's Child Trust Fund and Junior BPA for children up to 10 years old.
Barclays has constantly tried to educate its customers about its financial products and services, and how it will benefit them. Some of the new initiatives worth mentioning are outlined as follows:
Comprehensive Mobile Phone Insurance Its cover includes loss, theft, accidental damage, water and liquid damage, electrical and mechanical breakdown, unauthorized calls up to £2,000 per claim; accessories up to the value of £250 per claim alongside cover wherever you are in the world.
Green Flag Roadside Assistance This service that include home call, covers roadside assistance for 30 minutes at the side of the road. If vehicle is not able to be repaired, transportation will be arranged with another vehicle to drop up to five passengers to the destination of the customer's choice within a 10 mile radius.
Legal Helpline Legal helpline provides access to a helpline, 24-hours a day, covering a wide range of subjects by an independent team of solicitors and legal executives on call. Advice on English and Scottish law is also available over the phone.
Insurance Products Barclays is urging shoppers to be aware of how much their suitcase will be worth on their return to the UK and how much they stand to lose if their uninsured or under-insured luggage gets lost. Barclays has launched a range of competitive insurance products for holidaymakers who can have access to a range of cover for less money—perhaps making a saving of over £26 on a single trip travel policy. Barclays’ single and multi-trip policies can cover personal baggage up to £1,500. These are backed up by service guarantees and improved access and distribution. Barclays general insurance is available at over 2,000 branches, the telephone and the Internet, which features a ‘quote and buy’ facility.
Long-Term Barclays aims to be one of the most admired financial services organizations in the world in the eyes of shareholders, customers, colleagues and the communities in which they work.
The bank believes that the best measure of long-term performance is the total return they give to their shareholders—the increase in the price of their shares, assuming that any dividends are used to buy more shares, known as ‘total shareholder return’.
They are aware that only by comparing themselves to their closest competitors, can they clearly understand how well they are doing. They measure long-term success by looking at how good their total shareholder return is, compared with eleven of their closest competitors.
Medium-Term They aim to focus their energy where it will create the most value and, therefore, get them closer to achieving their goals. They believe this will be best achieved by concentrating on four medium-term themes that are as follows:
- Defend and extend UK banking
- Build new international markets
- Grow world-class global product businesses
- Develop operational excellence
- Find out whether Barclays bank offers any unique product.
- Distinguish between BBA, YPA and BPA.
- Discuss the retail banking strategy of Barclays Bank.
CASE STUDY II
ING VYSYA BANK3
The origin of the Vysya Bank (ING Vysya Bank) was pretty humble. It was in the year 1930 that a team of visionaries came together to establish a bank that would extend a helping hand to those who were not privileged enough to enjoy banking services. It has been a long journey since then and the bank has grown in size and stature to encompass every area of present-day banking activity and has carved a distinct identity of being India's premier private sector bank.
The bank has made rapid strides to reach the coveted position of being the number one private sector bank. In 1990, the bank completed its diamond jubilee year.
Milestones of the Bank Over the Long Years of Its Services
The major milestones achieved by the bank since its inception are as follows:
The Origin of ING Group
The ING group was originated in 1990 from the merger between Nationale–Nederlanden NV, the largest Dutch insurance company, and NMB Post Bank Groep NV. Combining roots and ambitions, the newly formed company was called ‘Internationale Nederlanden Group’. Market circles soon abbreviated the name to I-N-G. The company followed suit by changing the statutory name to ‘ING Group N.V’.
ING has gained recognition for its integrated approach to banking, insurance and asset management. Furthermore, the company differentiates itself from other financial service providers by successfully establishing life insurance companies in countries with emerging economies such as Korea, Taiwan, Hungary, Poland, Mexico and Chile. Another specialization is ING Direct, an Internet and direct marketing concept with which ING is rapidly winning retail market share in mature markets. Finally, ING distinguishes itself internationally as a provider of ‘employee benefits’, i.e., arrangements of non-wage benefits, such as pension plans for companies and their employees.
ING's mission is to be a leading, global, client-focused, innovative and low-cost provider of financial services through the distribution channels of the client's preference in markets where ING can create value.
The New Identity: ING Vysya Bank
Performance over the decades ING Vysya Bank Ltd is an entity formed with the coming together of the erstwhile Vysya Bank Ltd, a premier bank in the Indian private sector, and a global financial powerhouse ING, of Dutch origin.
Customer Relationship Management
The Citizen Charter The success of the banking industry in achieving its socio-economic and growth objectives will depend upon the ability to provide satisfactory service of high standard to the customers at an affordable cost. For any business for that matter, a satisfied customer is a key factor for its growth and development.
In order to achieve the twin objectives of socio-economic responsibilities and growth, ING Vysya Bank Ltd has come out with a ‘citizens’ charter’ which clearly defines and lays down the rules, regulations, terms and conditions governing its products and services, the commitment and responsibilities of its employees towards the customers, the redressal procedure in case of unsatisfactory service and the rights and obligations which customers are entitled for.
ING Vysya Bank maintains constant touch with their clientele through seminars, customer meets and personal contact in order to evaluate, improve and widen the range of products and services to the customers. The bank requests all its customers to keep it informed of their banking experience with it and also to provide their valuable comments/suggestions to enable it to improve the existing processes and procedures so that it could provide customer service of a very high standard.
The charter helps in providing transparency in customer transactions and adds to the banks credibility.
IT Implementation for Quick Customer Response
Tie-up with IBM IBM, along with its business partners Avaya Global Comment and Talisma, has implemented ‘Customer Service Line’, a customer relationship management (CRM) solution for ING Vysya Bank.
The ING Vysya Bank customer service line CRM solution ensures a 24 × 7 availability of phone banking service to its customers across the country and enables the bank to increase customer penetration, while improving customer response time.
IBM Global Services managed this CRM project and integrated it in addition to setting up the LAN infrastructure and IT infrastructure for this project. The ING Vysya customer service line provides full service phone banking solutions to its customers and handle customer requests.
Tie-up with iGate Solutions iGate Global brings together the best technology and domain expertise in the banking space to offer the full spectrum of services that include process consulting IT strategy, managed operations and back-office solutions, and transaction processing. ING Vysya Bank benefits from iGate Global's expertise in automating core banking operations, and implementing innovative multi-channel customer touch points that include online alerts, electronic bill payment and presentment. iGate Global also offers a unique business services provisioning model for specific banking processes. iGate Global plays a key role in the entire value chain—from hardware identification to procurement, to defining and implementing the technology strategy for the bank. iGate Global also takes responsibility for all data centre operations, systems and network management, and local or remote support at ING Vysya locations. This contract is worth around $20 million over 5 years.
The retail banking division of ING Vysya Bank has classified its products and services in the following main categories:
- Demand deposits
- Term deposits
Smartserv Smartserv is a comprehensive personal assistance service provided by ING Vysya Bank to its customers. The core benefits offered by this service are as follows:
- Save time and effort.
- Avail a range of services with a single call.
- Pay for various kinds of services easily.
The various services one can avail of under this scheme are as follows:
- Entertainment: Dining reservations and suggestions, concert, sport, theatre tickets, planning parties and picnics.
- Gifts: Delivery of flower baskets, cakes, chocolates and bouquets.
- Travel: Tickets and hotel bookings, car rental, leisure tours, travel information and tips and weekend getaways.
- Errands: Electricity and telephone bills, credit card bills, insurance and tax payments and school/college fees.
- Home services: Household appliance repairs, pest control and LPG cylinder booking.
- Emergency services: Non-fee based services like doctor, towing service and pharmacies.
- Information services: Regular services like restaurant services and reservations.
Demand Deposits It can take one of the following forms:
- Savings bank account
- Orange savings account
- Current account
- Access Plus
Savings bank account: At present interest rate is 3.5 per cent per annum, payable half yearly on all savings bank deposits. Free and concessional transfer of funds between accounts spread across branches is available. ING Vysya Bank has a large number of outlets which are networked, providing the facility of AAA Banking; one can operate an account from a remote place.
Orange savings account: This is a special type of account initiated by ING Vysya to provide added convenience to the customer and also to make banking as simple and hassle free as possible.
This account offers customers’ free access to the bank's own ATMs and free ATM transactions at over 9,000 non- ING Vysya Bank ATMs.
Some of the salient features include:
- Free personal accident insurance cover of Rs. 3 lakh for 3 years.
- Free annual accident hospitalization cover of Rs. 35,000 for 3 years.
- Free international debit card.
- Free opening of a demat account to buy/sell/hold stocks and shares in electronic format.
- Cash/cheque pick-up and delivery at select locations.
- Internet banking convenience through mi-b@nk.
Current account: This type of account is offered, like other banks.
Access Plus: The salient features of this special product launched by ING Vysya Bank are as follows:
- A single current account with access from eight cities in India.
- Separate cheque-books for each centre for easy reconciliation.
- Pooling of funds in the city of residence.
Access Plus current account can be opened in any one of the following three categories.
The term deposits products offered have been differentiated as follows:
- Akshaya deposits
- Fixed deposits
- VysUnit deposits
- Cumulative deposits
Let us try to understand the features of these similar, but differentiated products.
Akshaya deposits: The salient features of this product are given as follows:
- Type of account: Individual account, joint account.
- Period of deposit: 6 months to 10 years
- Payment of interest: Interest, compounded quarterly, along with interest accrued, plus principal amount, on maturity of the deposit.
- Loans: Loan of up to 75 per cent of the accrued value of the deposit can be taken.
- Premature closure: Permissible, however, with a marginal loss (1 per cent) of interest.
Fixed deposits: The salient features of this product are given as follows:
- Period of deposit: 15 days to 10 years
- Payment of interest: Monthly interest, on discounted value basis.
- Loans: Loan of up to 75 per cent of the value of the deposit can be taken
- Premature closure: Permissible, however, with a marginal loss (1 per cent) of interest.
VysUnit deposits: The salient features of this product are given as follows:
- VysUnits offer the depositor functional short-term disinvestments, without effecting change on the contracted rate of interest.
- Loan of up to 75 per cent of the value of the deposit can be availed of.
- Cost-free transfer between branches
Prashanti: This is an exclusive deposit scheme from ING Vysya Bank for senior citizens. Under this scheme, the deposits of 1 year and above maturities earn extra interest over and above the normal rates. Under this scheme one can avail of the following features.
- One can deposit minimum of Rs. 2,000 and in multiples of Rs. 1,000 thereafter up to any amount less than Rs. 30 lakh. The holder gets an additional 0.50 per cent interest. This is over and above the normal rate of interest.
- Easy to operate: The deposit can be in individual or joint names. The first name being the senior citizen's, the second applicant need not be a senior citizen.
- The scheme is applicable to both fixed deposits as well as re-investment deposits. You can choose between interest credits to be effected on monthly, quarterly, half-yearly or yearly modes.
Loans The ING Vysya Bank offers the following types of loans:
- Personal loans
- Against demat securities
- Auto loans
- Two-wheeler loans
- Home loans
- Truck loans
Personal loans: This type of loans is available for a wide range of amount. The loan eligibility depends upon net monthly income excluding all other statutory and financial commitments.
|For 1 year||4 times net monthly income|
|For 2 years||8 times net monthly income|
|For 3 years||11 times net monthly income|
|For 4 years||13 times net monthly income|
|For 5 years||15 times net monthly income|
For the purpose of calculating financial eligibility, the spouse's income can be added.
Loans against demat securities: In this scheme, the minimum limit is Rs. 50,000 and maximum limit is Rs. 20,00,000. The interest rate is very competitive, charged monthly on the amount drawn only.
Auto loans: The salient features of the auto loan are given as follows:
- Loan amount depends on the amount of margin money and the model. It varies between Rs. 1,00,000, and Rs. 20,00,000.
- For used cars, the loan amount varies between Rs. 75,000 and Rs. 7,50,000 based on the valuer's report and the amount of margin money.
- Up to 90 per cent of the invoice value.
Home loans: Most home loans help you build or buy a home. However, an ING Vysya protected home loan makes sure that customer gets free life insurance for the full loan term and for the full loan amount. In the event of something unfortunate happening, not only will the loan amount be paid off, but the nominee will also receive the principal amount that has already been repaid on the loan. It has a requirement of a minimum monthly income of Rs. 7,500.
- Options—fixed rate and floating rate
- Equated monthly installments (EMI)—Daily reducing balance
- Option to convert the type of loan
- Free property insurance—1 year
- Free demat account
- DD concession facility
Cards The following are the types of cards offered by the ING Vysya Bank to the customers.
Credit card: The benefits for credit card holder are as given as follows:
- No petrol transaction fee: As an introductory offer, the ING Vysya Bank credit card provides the exclusive benefit of no transaction fee on petrol purchases at any petrol pump that accepts the cards in India, as against the normal fee of 2.5 per cent as charged by some other banks.
- Reduced service charge on emergency cash: Every time you withdraw cash, a reduced service charge of 1.5 per cent will be levied from the date of withdrawal to the date of billing, as against the normal service charge of 2.95 per cent per month charged by some other banks.
- Revolving credit facility: Card members can opt for a revolving credit facility by remitting 5 per cent of their liability making it more convenient to utilize the credit limit.
- ING Vysya Bank credit card can be used for making down payments for investments, and payment of telephone and electricity bills.
- Customer loyalty by rewarding points: One point, equivalent to Rs. 1, is rewarded to every Re. 1 spent. It can be accumulated and redeemed for free gifts.
- Insurance protection: Personal accident insurance cover, baggage loss protection, 18 days protection on purchase of articles bought through card.
Debit cards: ING Vysya Bank issues ATM cum debit card in association with MasterCard International.
- Also, this card is very secure as it is a PIN-based card (at merchant locations, the payment has to be authorized using the PIN only) and the PIN cannot be used fraudulently as it is unique and only known to the cardholder.
- ING Vysya Bank has a daily limit of Rs. 15,000 and Rs. 25,000 for SB and current account holders, respectively, at ATMs (at merchant locations there is no transaction limit), and this is subject to the available balance in the account.
ING Vysya Bank's Retail Banking Strategy
Retail banking has many advantages like stable deposits, low cost of funds and large customer database on the resources side. On the asset side, the advantages are better yields and higher profitability, larger volumes of credit absorption, well-diversified risk and lower NPAs. These benefits, supplemented with the availability of surplus lendable resources, resulted in ING Vysya Bank focusing on the retail lending, portfolio.
Prospects of Retail Credit as a Market Segment for ING Vysya Bank One of the prominent features of retail banking and in particular retail credit is that it is a volume-driven business. Further, retail credit ensures that the business risk is widely dispersed among a large customer base, unlike in the case of corporate lending where the risk is concentrated on a few selected clients. ING Vysya is banking on its following abilities to administer a large portfolio of retail credit products.
- Strong credit assessment capability.
- Sound documentation.
- Strong processing capability.
Asset Portfolio In order to maximize the benefits flowing out of retail credit, it is very essential that a lot of thought and effort are put towards building volumes. There are several strategies for sustained business growth and profitability. Let us look at a few that ING has formulated.
Maximizing total relationship value: Banks are nowadays coming out with more and more features to add value to retail banking products and services. Few of the value-added services being offered by banks are free collection of outstation cheques, concession in commission on demand drafts/POs, free personalized cheque-books and accident insurance cover. While offering these value-added services, banks take into account the concept of total relationship value (TRV) of the customer to the bank through the various accounts or services being availed by him. This is simply done by offering a one-page brochure along with deposit account opening kits which give insight into the various retail credit facilities and competitive interest rates and also offer him a special concession on interest rate which is flowing out of the existing TRV, thus, letting the customer know that they truly appreciate his relationship with ING and that it wants to further expand it. This would generate a desire, which might result in availing the credit made available to him at softer terms.
Pro-action from a reliable customer database: ‘Data mining’ and ‘data warehousing’ have come to play a crucial role in the marketing strategy of cross-selling. It is imperative that banks build on this function, since data mining is essential in cross-selling of products, managing asset risk and improving per customer profitability. Data mining enables ING Vysya Bank to understand and predict client behaviour and develop an actionable consumer strategy. They plan to use this to great effect in promoting retail credit. It could be sending loan offer letters to existing borrowers especially those with an excellent 12-month plus track record or it could simply mean sending a ‘thank-you letter’ to the borrower on his loan maturing and getting closed. In addition, a fresh offer could be made to him.
Branding retail products: The strategy of branding at ING Vysya Bank is to separate products from those of competitors or stand out from the crowd. It is a means to communicate clear and competitive advantages to the customers. Traditionally retail product brands have proved to be particularly difficult to build. However, there is definitely room for retail products to establish powerful and winning brands. Winning brands have two things in common.
- A powerful consumer insight: Understanding and anticipating the customer.
- Intense focus: Focusing on a few products having strong appeal and real potential for growth.
- In order to build a retail assets portfolio, ING has taken lot of efforts like advertising and marketing campaigns.
Cross-selling: ING Vysya firmly believes that amongst all factors, cross-selling should take centre stage as a logical marketing approach to expand their retail segment. Cross-selling considerably reduces customer acquisition costs, servicing costs, and marketing and communication costs, thereby substantially increasing spread for banks. One such area is bancassurance which they have already ventured into. This enables better product bundling.
Cross-selling enhances customer loyalty. As the number of products that a customer purchases from a bank increases, the chance of loosing that specific customer to a competitor decreases.
- Discuss the retail banking products of ING Vysya Bank?
- ING Vysya Bank offers unique and attractive services to their customers. Do you agree with this statement? Debate.
CASE STUDY III
STATE BANK OF INDIA
(By, Sreyas Agarwal and Prof. Justin Paul)
Banking originated at a time when indigenous bankers played a very important role in lending money and financing foreign trade and commerce. During the days of the East India Company, it was the turn of the agency houses to carry on the banking business. The General Bank of India was the first joint stock bank to be established in 1786. The others which followed were the Bank of Hindustan and the Bengal Bank.
In the first half of the 19th century, the East India Company established three banks—the Bank of Bengal, 1809; the Bank of Bombay, 1840; and the Bank of Madras, 1843. These three banks, also known as presidency banks, were amalgamated in 1920 and a new bank, the Imperial Bank of India, was established in 1921. With the passing of the State Bank of India (SBI) Act in 1955, the undertaking of the Imperial Bank of India was taken over by the newly constituted SBI.
Features of the State Bank of India
The salient features of the SBI include:
- It is India's largest bank in terms of assets, net earnings, number of branches, market capitalization and market share.
- It has a vast distribution network of over 13,600 branches in India and 54 overseas offices in 28 countries.
- SBI is the preferred vehicle of the Government of India for raising funds abroad by way of NRI Bonds/India Millennium Deposit.
- It has a dominant corporate and retail banking franchise serving more than 90 million customers.
- SBI also has 200 years of continuous profitability.
- Central banker prior to formation of the Reserve Bank of India.
- It holds record of continuous dividend payment.
- It is also best positioned to leverage the resurgence in the Indian economy.
- Critical size achieved by the State Bank Group—USD 100 billion plus size, and profit crosses USD 1 billion mark.
- Consolidated group presents a formidable entity.
- Seven associate banks (ABs) considered together are the second largest bank in the country.
SBI has nearly one-fifth of the market share of total deposits and advances; along with the seven ABs, the State Bank Group enjoys more than one-fourth market share.
The primary activities can be listed as follows:
- Treasury operations
- Corporate banking group
- National banking group
- NPA management
- Internal controls
- Management information system
- Community services
These activities have been discussed in brief below.
Treasury Operations The State Bank is the largest player and market mover in both the rupee and FOREX markets in India. Treasury operations have expanded significantly beyond the conventional role of liquidity management and regulatory compliance to emerge as a major profit centre. The implementation of the Treasury Solutions Software has facilitated online trading, accounting, valuation and portfolio risk management. Real time gross settlement systems have also been implemented. Trading in derivatives, both rupee and FOREX, was introduced after putting in place requisite policies and risk management systems.
Corporate Banking Group The bank's corporate banking group (CBG) consists of three strategic business units (SBUs), namely Corporate Accounts Group (CAG), Leasing SBU and Project Finance SBU.
Leasing SBU: Compared to CAG and the Project Finance SBU, the Leasing SBU is not active in the market.
Project finance SBU: The bank's project finance SBU focuses on core and infrastructure sectors which are seen as drivers of future growth, like telecommunications, oil and gas, roads, bridges, ports and urban infrastructure. The SBU has also played an advisory role to the government through various committees, particularly in the power sector.
Associates and Subsidiaries
Associates: SBI has the following seven associate banks with controlling interest ranging from 75 per cent to 100 per cent.
- State Bank of Bikaner and Jaipur
- State Bank of Hyderabad
- State Bank of Indore
- State Bank of Mysore
- State Bank of Patiala
- State Bank of Saurashtra
- State Bank of Travancore
These seven ABs have a combined network of 4,596 branches in India which are fully computerized and 1,070 ATMs networked with SBI ATMs, providing value-added services to clientele.
Foreign subsidiaries: The foreign subsidiaries of SBI are as follows:
1. SBI International (Mauritius) Ltd, Offshore Bank: It is one of the first offshore banks to be established in Mauritius in 1990, with a paid up capital of USD 10 million. The bank has had a consistent record of having earned profits since its very first year of operations.
2. State Bank of India (California): A wholly owned subsidiary in California is a California State Chartered Bank and a member of the Federal Deposit Insurance Corporation. With four full-service branches and a money transfer office, the bank caters to the banking needs of the community, ethnic and non-ethnic alike, through various deposit and loan schemes. The bank also provides Internet banking, telebanking, ATM service and credit cards.
3. State Bank of India (Canada): A wholly owned subsidiary of SBI has been operating in Canada at four locations—Toronto, Vancouver, Surrey and Mississauga—extending various facilities to Indians settled in Canada such as remittance of funds through a network of over 9,000 offices of SBI, the largest commercial bank in India and through the branches of its ABs. SBI(C) has also been instrumental in fostering trade ties between India and Canada by extending financial, advisory and logistic support to Canadian and Indian corporates.
4. INMB Bank Ltd., Lagos: A subsidiary of SBI, INMB Bank Ltd, (formerly Indo–Nigerian Merchant Bank Ltd) was incorporated on 26 November 1981 under the Banking Act, 1969. The principle activity of the bank is providing banking services, mainly to corporate clients. Such services include the granting of loans and advances, equipment leasing, corporate finance activities and financial advisory services.
Products and Services
SBI has a vibrant range of products and services ranging from personal banking, international banking and corporate services.
Personal Banking SBI has a wide range of products in personal banking which are designed with huge flexibility to meet every customer's needs. The personal banking products are listed as follows:
- SBI term deposits
- SBI recurring deposits
- SBI housing loan
- SBI car loan
- SBI educational loan
- SBI personal loan
- SBI loan for pensioners
- Loan against mortgage of property
- Loan against shares and debentures
- Rent Plus scheme
- Medi Plus scheme
SBI term deposit: SBI offers attractive term deposit schemes that range from 15 days to 10 years and that can be opened with as low as Rs. 1,000.
Recurring deposit: The recurring deposit schemes of SBI feature high flexibility in periods of deposit with maturity ranging from 6 months to 10 years which can be opened with amounts as low as Rs. 100.
Housing loan: SBI housing loans come with features like no hidden costs or unnecessary documentation. They have the longest tenors and repayment terms are amongst the most flexible. SBI offers a totally transparent process. SBI even gives an in-principle approval prior to identifying a house/flat, relieving the customer of the tension of anticipating the approved amount. And to show the importance which SBI gives to housing loans, SBI has specialized housing loan branches to serve the needs better. A special short-term housing loan scheme for loans of repayment period up to 5 years has been launched by SBI. This scheme carries still lower rates of interest.
Other features of SBI housing loans are as follows4:
- Low EMI
- Low interest rates, currently between 8–9.25 per cent per annum on daily reducing balances
- A nominal processing fee of 0.25 per cent
- No hidden costs or administrative costs
- No prepayment penalties as compared with penalties of up to 2 per cent charged by others
- In-principle approval given prior to customer's identifying a house/flat, giving flexibility in choice
SBI Car loan: The SBI car loans come with the following features:
- Lowest interest rates
- Longer repayment period of up to 84 months
- Zero processing charges
- No hidden costs or administrative charges
- Finance for one-time road tax, registration fee and insurance premium
- No advance EMIs
- Complete transparency: SBI levys interest on the daily reducing balance method. When customers pay one installment, the interest is automatically calculated on the reduced balance thereafter. When customers pay interest on an annual reducing balance, as charged by many other companies/banks, the interest amount for the coming year is determined on the amount outstanding at the beginning of the year. Customers continue to pay interest even on the amounts they repay during the year
- The interest rates offered are floating rates and fixed rates
SBI Educational loan: The SBI educational loans include loans for the following expenses:
- Fees payable to college/school/hostel
- Examination/library/laboratory fees
- Purchase of books/equipment/instruments/uniforms
- Caution deposit/building fund/refundable deposit
- Travel expenses/passage money for studies abroad
- Purchase of computers considered necessary for completion of course
- Cost of a two-wheeler up to Rs. 50,000
Amount of loan: Amount of loan offered to students by SBI in India and abroad are as follows:
- For studies in India, maximum Rs. 10 lakh
- Studies abroad, maximum Rs. 20 lakh
Processing fees: The processing fees charged by SBI are as follows:
- No processing fee/upfront charges
- Deposit of Rs. 5,000 for education loan for studies abroad, which is adjusted in the margin money
Repayment tenure: Repayment commences 1 year after completion of course or 6 months after securing a job, whichever is earlier.
SBI Personal loan: SBI personal loans are available across the country from more than 3,000 branches and come with the following features:
- Lowest interest rates
- Lowest processing charges—no hidden costs or administrative charges
- No security required which means minimal documentation
- No prepayment penalties—reduces the interest burden and customers can optimally utilize their surplus funds by prepaying the loan
- Long repayment period of up to 48 months
- The important feature is processing charges which are 1 per cent of the loan amount. This is amongst the lowest fees in the industry. Processing fees have to be paid upfront. There are no hidden costs or other administrative charges
SBI Loan for pensioners: These loans are available to central or state government pensioners drawing pension through one of the SBI branches. Loans can be availed of up to a maximum of 6 months pension, subject to a ceiling of Rs. 40,000 and come with easy documentation. The loan may be repaid over 2 years and will carry a low interest rate of 13.1 per cent.
There are no processing fees, no hidden costs and no prepayment penalties. Whenever customers have some surplus funds, they can credit their loan account, thereby reducing the loan liability and interest burden.
Loan against mortgage of property: This loan comes with features like minimum amount of 1 lakh and maximum amount of 50 lakhs and margin of up to 50 per cent. The loan amount can be repaid in maximum of 60 installments and customers can opt to divert any surplus funds towards prepayment of the loan without attracting any penalty.
Loan against shares and debentures: SBI offers loans up to Rs. 20 lakh with the following features:
- Lowest interest rates
- Lowest processing charges
- No hidden costs or administrative charges
- No pre-payment pen
Rent Plus scheme: This is a term loan available for 7 years or the residual lease period, whichever is lower.
Medi Plus scheme: This loan is available for specialized medical treatments which not only do the cost implications run into several lakhs of rupees, but more often than not, these liquid funds also need to be generated at a very short notice, in order to be able to make prompt hospital bill payments. With this in mind, Medi Plus is specially designed to make life simpler for customers.
Medi Plus scheme covers the cost of treatments such as follows5:
- Corneal implant
- Orthodontic treatment (fixed tooth implant)
- Congenital heart surgery
- Heart valve replacement surgery
- Serious accidents and multiple injuries surgery
- Hip and knee replacement surgery
- Coronary artery bypass/graft surgery
- Reconstructive nose surgery with face lifting
- Penile implant surgery
NRI Accounts The following types of NRI accounts are offered by SBI.
- NRE rupee accounts
- Savings bank
- Current accounts
- Term deposits (interest paid out quarterly)
- Special term deposits (interest compounded quarterly)
- Non-resident (ordinary) account: Rupee accounts for crediting income from India for Non-residents
- Foreign currency non-resident accounts: Fixed deposits in pound, sterling, US dollar and euro currencies
- Resident foreign currency accounts
- All these accounts come with features like ATM, Internet banking, easy swipe facility between fixed deposit and current accounts
Agricultural Accounts The important types of agricultural accounts offered by SBI are given as follows:
- Crop loan
- Produce marketing loan scheme
- Loan against warehouse receipts/cold storage receipts
- Kisan credit card scheme
- Agricultural term loans
- Land development schemes
- Minor irrigation schemes
- Kisan gold card scheme
- Land purchase scheme
- Dairy plus scheme
- Broiler plus scheme
- Finance to horticulture
- Lead bank scheme
International Banking In international banking segment, SBI offers the following services:
- Trade finance
- Correspondent banking
- Corresponding banking—categorization
- Swift operations centre (SOC)
- Nostro accounts
- Standard settlement instructions FOREX trading account
- Merchant banking
- Project export finance
- Exporter gold card
- The SBI offers an exhaustive range of financial products and services that answer any business or market circumstance, backed by an expertise in customizing the product to meet the most sensitive specificities of each client and each business.
- Commanding unsurpassed respect and legacy in the Indian financial expanse, the SBI is committed to offer financial solutions that extract maximum value from business and market situations.
- While the bank is strongly positioned to structure financial packages that anticipate the changing business environment, its branch network—the world's largest—ensures delivery channels of unmatched reach.
SME Schemes SBI has been playing a vital role in the development of small-scale industries since 1956. It has over 50 specialized SSI branches and more than 400 branches.
- State Bank of India offers very attractive product for all types of customers. Do you agree with this statement? Validate your argument with points.
- Although State Bank of India has better products, they lag behind banks like Barclays Bank and ING Vysya Bank in marketing efforts. Do you think so? Compare, discuss and debate.