Economic Environment and Policy (EEP)

Session-5

Chapter Nine

PRIVATISATION
Privatisation means a change in ownership resulting in a change in management. Disinvestment means dilution of the stake of the government to a level where there is no change in control that results in the transfer of management.

No. of Industries reserved for Public sector in India No. of Industries reserved for Public sector in India No. of Industries reserved for Public sector in India No. of Industries reserved for Public sector in India
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17(1956) 8(1991) 6(1993) 3(Now)

GLOBAL ECONOMY AND PRIVATISATION-CASE STUDY

Chile Mid 1970s

U.K - Privatisation by Margaret Thatcher in 1980s (modified the phrase as `Popular Capitalism) British Telecom, British Air, British Power, British Petroleum and British Rail were some of the were some of the major PSUs disinvested
France Privatisation of 66 PSUs during 1986 to 88 (42 in banking, 13 in Insurance, 9 in Industry Sectors, 2 Telecom) Germany Sale of government stake of PSUs like Volkswagen (Auto), Lufthansa etc.
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DISINVESTMENT - METHODS

1. 2. 3.

Strategic Sale Initial public offer through Capital Market (Domestic) Issue of GDR / ADR

DISINVESTMENT (INDIA) PERFORMANCE (Rs. Billion) Year

2000-01 01-02 02-03 03-04 04-05

Target
100 120 120 132 40

Collection
18.70 56.03 33.48 155 27

DISINVESTMENT (Strategic Sale)

Proposal for disinvestment placed for consideration of Cabinet Committee on Disinvestment (CCD). Then Expression of Interest Call for. Shortlisting of bidders, Due Diligence of PSU by bidders. Bid received are again placed before CCD for final decision. Ex: (1) Sale of 51% stake in BALCO to Sterlite Industries (2) 74% stake in Lagan Jute Machinery to Murlidhar Ratanlal Exports Ltd in 2000.

DISINVESTMENT: STRATEGIC SALE METHOD-

cases
3) 51% stake in CMC limited to Tata Sons Rs.152 crores (Oct 2001) for

4) 25% equity out of Govts 53% stake in VSNL to M/S Panatone (Tata Group) Feb 2002
5) 26% equity in IPCL (out of 60% Govt. stake) to Reliance Group (May 2002)

OTHER METHODS OF DISINVESTMENT

1. Global Depository Receipt Issue (ex: VSNL during 1996-97 and 97-98) 2. Domestic Offering of shares (ex: GAIL in 1998-99) through Capital Market. (IPO)

Other IPOs are ONGC (10%), Maruti (27.5%) in 2003-04.

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Your responsibility CASE DISCUSSION

Privatisation of VSNL Privatisation of Airports and Airline Industry Air Deccan Review the question and answer

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Chapter - 12

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The Evolution of Banking in India

Future Business complexity

Present Retail push Complex products Multiple channels Challenge of increasing volumes

Continued retail focus Need to push down per transaction costs

Past Simple products Low volumes Focus on high value corporate business

Time

Changing business needs have constantly posed challenges for the technology
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The Deployment of Technology.

Automate the routine / transactions
THEN Move on to new ways of service delivery THEN Move on to new ways of doing business
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The Key Areas of Application of Technology

1. Transaction processing

1. Make the routine BUT NECESSARY work

1. 2. 3. 4. Easier Faster Accurate Cheaper

2. Product bundling / creation

1. Combine products in ways otherwise not possible

3. Cost cutting

1. Normal transaction channel migration 2. Technology led delivery of products

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Transaction Processing
Rapid

increase in customer base led to proportionate growth in number of transactions, creating a need to use technology to improve productivity and efficiency of the processes
Focused

1. Transaction Processing

factory concept for processes like account opening, cheque clearing etc. Economies of scale Control and consistency in processes Reduced load on branches Improved turn around times

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Transaction Processing Contd.

Automated cheque processing Imaging and document management Automated deal matching system Centralization of operations like clearing

Technology Initiatives

Allows

economies of scale

Advantages Centralization

Reduction

branch

in costs of running each

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Delivery Channels
Operations Branch Network
$

Channels

ATMs
$

Branch

Pull
Cheque Shops

Branch

Push
$

Internet Banking Call Centers

Branch
$

m-Banking Agents

CPC

Branch

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2. Product Creation and Bunding

Online Trading Account The online trading account integrates banking, broking and demat accounts. Key Features Low minimum balance with plain vanilla SB features Facilitate investment in a basket of products MF, IPOs, etc. No paperwork Complete information Shares can be bought/sold immediately
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Key Benefits
Convenience - Trading without the hassle of chasing the brokers Independence - No need to transfer money to brokers pool Speed - Transaction reduces few clicks Control - A comprehensive account for all the investment needs Rich Content - The trading site offers a rich content and helps to take an informed decision Settlements - They are no longer a problem
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3. Technology Led Delivery of Products

Technology led delivery

m-Banking

Call centers

Internet Banking Loans Home, car etc.

ATMs

Private banking Young Stars / Student Banking Services

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Credit / debit cards

Deposits

Investments Mutual funds, GoI bonds

Savings account

with a strong focus on web-enabling all services

Channel Migration as a tool for cost cutting

Migrating the customers to alternate channels improves the quality and lowers the cost of service delivery The banks are getting consumers to use the right channels for the right transactions and interactions
The alternate delivery channels are the biggest growth drivers for the banks

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Extended Reach by Multi-channel Offerings

Multi-channel delivery model

Phone Banking Internet banking Branch Banking

m-Banking ATM

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with focus on migrating customers to technology enabled delivery channels

Channels

Electronic bill presentment and payment

Internet Banking Services

Online bill payment for shopping travel and donation transactions

Funds transfers 24X7 facility Money to India for NRI customers All routine transactions regarding Banking, Cards, Loans and Investment services Routine Banking transactions like balance enquiry, cash withdrawal, funds transfer, cheque book requests etc. Features like airtime recharge for pre-paid mobile phones, donations to temples/trusts ATMs for visually challenged customers

Automatic Teller Machine

Channels
SMS

Mobile Banking

alerts for salary credit, account getting credited/debited, cheque bounce

SMS

alerts for credit card due date reminders, approaching credit limit reminders
contact through Voice, e-mail, correspondence, video conferencing range of solution offerings to customer right from balance enquiry to execution of banking transactions like funds transfer, bill payment over phone

Customer

Call Centre

Wide

Channel migration sustained emphasis

ATM 15%

Call Centre 5%

Internet 2%

Branch 78%

Internet 12%

Branch 30%

2000

Call Centre 12%

ATM 46%

2004
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Functions of Channels
Functions that channels must perform
Sales Transaction

What are the various activities under

Sales? Transactions?

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The Activities Under Sales.

Pre sale
Lead generation Lead follow up Account opening

Post sale
Cross sell Relationship deepening
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The Activities Under Transactions.

Cash payment/withdrawal Request for Demand Draft /Pay Order Account opening/closure/transfer

Demat Queries Standing Instructions

Fixed deposit renewal/closure/opening

Investment Consultancy
Balance Enquiry/last few transactions Statement of Account Cheque Book Request

Address Change
Stop Payment Cheque Deposit Funds Transfer

Cheque Status Enquiry

Balance/Interest Certificates
Others...

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Types of Channels
Predominantly Human
Where do these belong?

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Predominantly Technology

Branch Mobile banking Home service Internet banking ATMs Call centre

Let us do a SWOT of each channel.

Strengths

Weaknesses

Personal touch Personalized information Facilitates complex banking activities Customer retention Deepening of relationships Brand visibility Inculcates customer loyalty Perceived as a trusted advisor
Opportunities

Requires high manpower High infrastructure cost Restricted timings Limited accessibility Time consuming

Threats

Financial advisor Facilitates channel migration Effective cross selling

Increasing cost of transactions in the branch

The Branch Channel.

Strengths

Weaknesses

Cost effective Better reach Brand visibility Round the clock availability Quicker transactions Networked to centralized database enabling online updating Adds a fillip to Banks customer base
Opportunities

Cost of set up Limited cash dispensing ability Lack of human interface Waiting time is not eliminated completely

Threats

Platform for cross selling Security concerns Value added services like Lower brand loyalty donations, mobile phone prepaid recharging Shared ATMs to reduce cost and to maximize reach Mobile ATMs to reach remotely located customers

The ATM Channel.

Strengths

Weaknesses

Lowest cost per transaction Reach Minimum physical infrastructure Round the clock availability Convenience banking Account integration for single relationship view Waiting time eliminated Information gateway
Opportunities

All transactions not possible Slow adopters to internet banking Lack of human interface Poor penetration of internet in India

Threats

Platform for cross selling Value added services like ticket reservations Virtual banking

Security concerns Lack of strong trust environment Perceived notion that internet is not a safe place to conduct financial transactions Not accessible to masses

The Internet Channel.

Strengths

Weaknesses

Cost effective and accessible Most of the banks offer 24*7*365 days service Convenience banking Economies of scale Self banking through IVR Single point of contact for multiple products Supports complaint resolution
Opportunities

Cost of set up Limited transactions Communication barrier High AHT (Actual Handling Time)

Threats

Campaign & cross selling opportunities Accessibility across locations Deepening of relationships Acquisition of new customers

Communication gap Customer perception of incurring cost while transacting

The Phone Channel.

Your responsibility
Review the question and answer

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